Attached files
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EX-23.2 - Cellectar Biosciences, Inc. | v171998_ex23-2.htm |
EX-10.47 - Cellectar Biosciences, Inc. | v171998_ex10-47.htm |
EX-10.46 - Cellectar Biosciences, Inc. | v171998_ex10-46.htm |
As
filed with the Securities and Exchange Commission on January 26, 2010
Registration
No. 333-161922
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment No. 2 to
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
NOVELOS
THERAPEUTICS, INC.
(Name
of registrant in its charter)
Delaware
|
2834
|
04-3321804
|
||
(State
or other jurisdiction
of
incorporation or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
employer
identification
number)
|
One
Gateway Center
Suite
504
Newton,
Massachusetts 02458
(617)
244-1616
(Address
and telephone number of principal executive offices)
Harry
S. Palmin
President
and Chief Executive Officer
Novelos
Therapeutics, Inc.
One
Gateway Center, Suite 504
Newton,
Massachusetts 02458
(617)
244-1616
(Name,
address and telephone number of agent for service)
Copies
to:
Paul
Bork, Esq.
Foley
Hoag LLP
155
Seaport Boulevard
Boston,
Massachusetts 02210
(617)
832-1000
Approximate date of proposed sale to
the public: As soon as practicable after this Registration Statement
becomes effective.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933
(“Securities Act”), check the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
(Check
one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
(Do not
check if a smaller reporting company)
The
registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Explanatory
Note:
On
September 15, 2009, Novelos Therapeutics, Inc. (the "Company") filed a
Registration Statement on Form S-1 (File No. 333-161922) (the “Registration
Statement”) with the Securities and Exchange Commission registering the resale,
from time to time, of 58,745,592 shares of the Company's common stock, par value
$0.00001 per share, issuable upon conversion of Series E preferred stock and
upon exercise of warrants held by the selling stockholders named therein.
This Amendment no. 2 to the Registration Statement reduces the number of shares
registered thereunder to 19,000,000, all of which shares are issuable upon
conversion of the Company's Series E preferred stock. The Company hereby
withdraws the registration of the remaining 39,475,592 shares of common
stock.
The
information in this prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and the selling stockholders are not
soliciting offers to buy these securities, in any state where the offer or sale
of these securities is not permitted.
Subject
to completion dated January 26, 2010
PROSPECTUS
19,000,000
shares of common stock
NOVELOS
THERAPEUTICS, INC.
This
prospectus relates to the resale, from time to time, of up to 19,000,000 shares
of our common stock by the stockholders referred to throughout this prospectus
as “selling stockholders.” These shares are issuable upon conversion of
shares of our Series E Preferred Stock.
The
selling stockholders will receive all of the proceeds from the sales made under
this prospectus. Accordingly, we will receive no part of the proceeds from sales
made under this prospectus. We are paying the expenses incurred in registering
the shares, but all selling and other expenses incurred by the selling
stockholders will be borne by the selling stockholders.
Our
common stock is quoted on the OTC Electronic Bulletin Board of the National
Association of Securities Dealers, Inc. under the symbol “NVLT.OB.” On January
25, 2010, the last reported sale price of our common stock on the OTC Electronic
Bulletin Board was $2.15 per share.
Investing
in our common stock involves a high degree of risk.
See
risk factors beginning on page 8 of this prospectus.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date
of this prospectus
is ,
2010
2
TABLE OF
CONTENTS
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Page
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PROSPECTUS
SUMMARY
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5
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RISK
FACTORS
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8
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FORWARD-LOOKING
STATEMENTS
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19
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USE
OF PROCEEDS
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19
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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19
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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20
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BUSINESS
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25
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LITIGATION
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34
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PROPERTIES
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34
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MANAGEMENT
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34
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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42
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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45
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PRIVATE
PLACEMENTS OF OUR SECURITIES WITH THE SELLING
STOCKHOLDERS
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45
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SELLING
STOCKHOLDERS
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50
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PLAN
OF DISTRIBUTION
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53
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DESCRIPTION
OF SECURITIES
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54
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DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
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58
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WHERE
YOU CAN FIND MORE INFORMATION
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58
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LEGAL
MATTERS
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59
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EXPERTS
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59
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FINANCIAL
STATEMENTS
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F-1
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3
No
dealer, salesperson or other person has been authorized to give any information
or to make any representations other than those contained in this prospectus in
connection with the offer contained in this prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by us.
Neither
the delivery of this prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in our affairs
since the date hereof. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy securities other than those specifically offered
hereby or of any securities offered hereby in any jurisdiction where, or to any
person to whom, it is unlawful to make such offer or solicitation. The
information contained in this prospectus speaks only as of the date of this
prospectus unless the information specifically indicates that another date
applies.
This
prospectus has been prepared based on information provided by us and by other
sources that we believe are reliable. This prospectus summarizes certain
documents and other information in a manner we believe to be accurate, but we
refer you to the actual documents, if any, for a more complete understanding of
what we discuss in this prospectus. In making a decision to invest in the common
stock, you must rely on your own examination of us and the terms of the offering
and the common stock, including the merits and risks involved.
We are
not making any representation to you regarding the legality of an investment in
our common stock under any legal investment or similar laws or regulations. You
should not consider any information in this prospectus to be legal, business,
tax or other advice. You should consult your own attorney, business advisor and
tax advisor for legal, business and tax advice regarding an investment in our
common stock.
4
PROSPECTUS
SUMMARY
The
following summary highlights certain material aspects of the offering for resale
of common stock by the selling stockholders covered by this prospectus but may
not contain all of the information that is important to you. You should read
this summary together with the more detailed information regarding our company,
our common stock and our financial statements and notes to those statements
appearing elsewhere in this prospectus, including the “RISK FACTORS” beginning
on page 8.
Business
of Novelos
We are a
biopharmaceutical company, established in 1996, commercializing oxidized
glutathione-based compounds for the treatment of cancer and
hepatitis.
NOV-002,
our lead compound, is currently in Phase 3 development for non-small cell lung
cancer. NOV-002 is intended for use in combination with chemotherapy
to act as a chemopotentiator and a chemoprotectant. The primary
endpoint of this trial is improvement in median overall
survival. Patient enrollment commenced in November 2006 and targeted
enrollment was reached in March 2008. On
January 7, 2010, we announced that the 725th event
(patient death) had been reached in this trial, thus triggering the steps toward
the pre-specified analysis according to the trial’s Statistical Analysis Plan
(“SAP”). We anticipate that top-line results for this trial will be
available later in the first quarter of 2010.
NOV-002
is also being developed to treat early-stage breast cancer. In June 2007 we
commenced enrollment in a U.S. Phase 2 neoadjuvant breast trial, which is
ongoing at The University of Miami to evaluate the ability of NOV-002 to enhance
the effectiveness of chemotherapy.
NOV-002
is also being developed to treat chemotherapy-resistant ovarian
cancer. A U.S. Phase 2 trial was completed in 2008 at Massachusetts
General Hospital and Dana-Farber Cancer Institute.
Based on
results to-date, we intend to initiate several Phase 2 trials with NOV-002 in
these and possibly other cancer indications. Our ability to initiate
these trials, and the timing of such trials, will depend on available
funding.
NOV-205,
our second compound, is intended for use as a hepatoprotective agent with
immunomodulating and anti-inflammatory properties. Our
Investigational New Drug Application for NOV-205 as monotherapy for chronic
hepatitis C has been accepted by the FDA. A U.S. Phase 1b clinical
trial in patients who previously failed treatment with pegylated interferon plus
ribavirin was completed in December 2007. Based on favorable safety
results of that trial, we plan to initiate a longer duration, proof-of-concept
trial in the event we obtain the additional funding necessary for that
purpose.
Both
compounds have completed clinical trials in humans and have been approved for
use in Russia, where they were originally developed. A Russian
company, ZAO BAM, has rights to the compounds in Russia and the other states of
the former Soviet Union, other than Estonia, Latvia and Lithuania (the “Russian
Territory”). We own all intellectual property rights worldwide, other
than the Russian Territory, related to compounds based on oxidized glutathione,
including NOV-002 and NOV-205. Our patent portfolio includes six U.S. issued
patents, two European issued patents and one Japanese issued
patent.
Novelos
has a collaboration agreement with Lee’s Pharmaceutical HK Ltd. (“Lee’s Pharm”)
to develop, manufacture and commercialize, on an exclusive basis, NOV-002 and
NOV-205 in China, Hong Kong, Taiwan and Macau (the “Chinese
Territory”). Novelos has entered into a collaboration agreement with
Mundipharma International Corporation Limited (“Mundipharma”) to develop,
manufacture and commercialize NOV-002, on an exclusive basis, in Europe (other
than the Russian Territory), most of Asia (other than the Chinese Territory) and
Australia.
The
Offering
Securities
Offered:
|
|
· 19,000,000 shares
of our common stock issuable upon conversion of shares of our Series E
Convertible Preferred Stock.
|
5
Use
of Proceeds:
|
We
will not receive any of the proceeds from the sale by any selling
stockholder of common stock or the conversion of preferred
stock.
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Total
Shares of our Common Stock
Outstanding
as of January 18, 2010:
|
71,391,957
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Issuance
of Series E Shares and Warrants
The
shares of the common stock offered hereby are issuable upon conversion of
approximately 247 shares of our outstanding Series E Convertible Preferred
Stock, stated value $50,000 per share (“Series E preferred stock”), having an
aggregate stated value of approximately $12,350,000. A total of
645.442875 shares of Series E preferred stock were issued on February 11, 2009,
and are convertible at a price of $0.65 per share of common
stock. Of that total amount, 200 shares of Series E preferred stock
were sold in a private placement together with warrants to purchase up to
9,230,769 shares of common stock at an exercise price of $0.65 per share, to
Purdue Pharma, L.P. (“Purdue”), an independent associated company of
Mundipharma, for a gross purchase price of $10,000,000 (approximately $9,200,000
net after deduction of advisor fees and transaction expenses). This
sale took place concurrently with the entry into the collaboration agreement
with Mundipharma. The remaining 445.442875 shares of the Series E
preferred stock were issued in exchange for all of our then outstanding shares
of our Series D Convertible Preferred Stock, stated value $50,000 per share
(“Series D preferred stock”), which had been issued in a private placement to
accredited investors in April 2008. At the time of that exchange,
warrants to purchase 11,865,381 shares of our common stock at an exercise price
of $0.65 per share held by the former Series D investors were amended, primarily
to extend their exercisability until December 31, 2015, the date on which the
warrants issued to Purdue cease to be exercisable.
We
previously registered under the Securities Act of 1933, 12,000,000 shares of our
common stock issuable upon conversion of 156 shares of Series E preferred stock
held by the former Series D investors.
Summary
Financial Information
The
following table provides selected financial and operating data for the periods
indicated:
Nine Months Ended
September 30,
|
Year Ended
December 31,
|
|||||||||||||||
2009
|
2008
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2008
|
2007
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|||||||||||||
Revenue
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$ | 76,983 | $ | 89,523 | $ | 125,968 | $ | − | ||||||||
Costs
and expenses
|
6,666,781 | 14,531,304 | 16,716,985 | 20,294,187 | ||||||||||||
Other
income (expense)
|
(2,823,029 | ) | 129,306 | 139,611 | 737,052 | |||||||||||
Net
loss
|
(9,412,827 | ) | (14,312,475 | ) | (16,451,406 | ) | (19,557,135 | ) | ||||||||
Net
loss attributable to common stockholders
|
(12,622,760 | ) | (20,193,505 | ) | (22,960,823 | ) | (29,721,338 | ) | ||||||||
Current
assets
|
5,927,083 | 4,402,689 | 1,392,237 | 11,059,501 | ||||||||||||
Current
liabilities
|
7,408,800 | 6,961,971 | 6,617,206 | 7,059,390 | ||||||||||||
Total
assets
|
5,996,461 | 4,463,424 | 1,466,038 | 11,107,660 |
6
Our
principal executive offices are located at One Gateway Center, Suite 504,
Newton, Massachusetts 02458 and our telephone number is (617)
244-1616.
7
RISK
FACTORS
The
following risk factors should be considered carefully in addition to the other
information contained in this prospectus:
Risks
Related to Our Business and Industry
We
will require additional capital to continue operations beyond the third quarter
of 2010.
The
report from our independent registered public accounting firm dated March 17,
2009 and included with our annual report on Form 10-K indicated that factors
existed that raised substantial doubt about our ability to continue as a going
concern.
The
primary endpoint of our Phase 3 clinical trial for NOV-002 in non-small cell
lung cancer is increased median overall survival, to be measured following the
occurrence of 725 events (patient deaths). On
January 7, 2010, we announced that the 725th event
(patient death) had been reached in this trial, thus triggering the steps toward
the pre-specified analysis according to the trial’s Statistical Analysis
Plan. We anticipate that the top-line results from this trial will
be available later in the first quarter of 2010. On August 25, 2009,
we entered into a Securities Purchase Agreement (the “August 2009 Purchase
Agreement”) with Purdue Pharma L.P. (“Purdue”) contemplating the issuance and
sale at two or more closings of up to 13,636,364 shares of our common stock and
warrants to purchase approximately 4,772,728 shares of our common stock for an
aggregate purchase price of $9,000,000. At the initial closing on
August 25, 2009, we sold Purdue 5,303,030 shares of common stock and a warrant
to purchase 1,856,062 shares of common stock for gross proceeds of
$3,500,000. At the final closing under the August 2009 Purchase
Agreement on November 10, 2009, we sold Purdue 8,333,334 shares of our common
stock and warrants to purchase 2,916,668 shares of our common stock for gross
proceeds of $5,500,000. The August 2009 Purchase Agreement required
us to adopt an expanded development and regulatory plan for NOV-002 (the
“Plan”), which contemplates substantial expenditures through mid-2010 in
addition to clinical development expenditures previously contemplated for the
completion of the Phase 3 trial. We are required to use proceeds from
the sale of securities under the August 2009 Purchase Agreement for the
expenditures identified in the Plan. We believe that the available
funds at September 30, 2009, plus the proceeds from the final closing under the
August 2009 Purchase Agreement, will allow us to operate beyond the conclusion
of the Phase 3 trial and into the third quarter of 2010, as set forth in the
Plan.
Our
ability to execute our operating plan beyond the third quarter of 2010 is
dependent on our ability to obtain additional capital (including through the
sale of equity and debt securities at any time and by entering into
collaborative arrangements for licensing rights in North America) to fund our
development activities. We plan to pursue these alternatives, but there can be
no assurance that we will obtain the additional capital necessary to fund our
business beyond the third quarter of 2010. The timing and content of
the Phase 3 clinical trial results will affect our projected cash requirements
and our ability to obtain capital. If the results are favorable, we
believe we will be able to obtain adequate funding to pursue our strategic
objectives and clinical development programs longer term. If the
results of our Phase 3 clinical trial are not favorable, we may be unable to
obtain additional funding, and we may be required to scale back our
administrative activities and clinical development programs, or cease our
operations entirely. Furthermore, adverse conditions in the capital
markets globally may impair our ability to obtain funding in a timely manner.
8
Purdue
has obtained certain rights that may discourage third parties from entering into
discussions with us to acquire rights to NOV-002 for the United
States.
Until
Purdue receives certain information related to our Phase 3 clinical trial in
non-small cell lung cancer, Novelos is prohibited from negotiating with any
party other than Purdue for the license or other acquisition of rights to
register, develop, make, have made, use, warehouse, promote, market, sell, have
sold, import, distribute and offer for sale NOV-002 (collectively, “NOV-002
Rights”) in the United States. Purdue has been granted a right of
first refusal on bona fide offers to obtain NOV-002 Rights in the United States
received from third parties and approved by our board of
directors. Under Purdue’s right of first refusal, Purdue will have 30
days to enter into a definitive agreement with Novelos on terms representing the
same economic benefit for Novelos as in the third-party offer. The
right of first refusal terminates only upon specified business
combinations. Novelos has separately entered into letter
agreements with Mundipharma and an independent associated company providing for
a conditional exclusive right to negotiate for, and a conditional right of first
refusal with respect to third party offers to obtain NOV-002 Rights (i) for
Mexico, Central America, South America and the Caribbean and (ii) for Canada,
respectively. The existence of these rights may discourage other
possible strategic partners from entering into discussions with us to obtain
NOV-002 Rights in North and South America.
We
may have difficulty raising additional capital for our future operations in the
longer term.
We
currently generate insignificant revenue from our proposed products or
otherwise. We do not know when this will change. We have
expended and will continue to expend substantial funds on the research,
development and clinical and pre-clinical testing of our drug
compounds. We will require additional funds to conduct research and
development, establish and conduct clinical and pre-clinical trials, establish
commercial-scale manufacturing arrangements and provide for the marketing and
distribution of our products. Additional funds may not be available
on acceptable terms, if at all. If adequate funding is not available
to us, we may have to delay, reduce the scope of or eliminate one or more of our
research or development programs or product launches or marketing efforts, which
may materially harm our business, financial condition and results of
operations.
Our
capital requirements and our ability to meet them depend on many factors,
including:
|
·
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the
number of potential products and technologies in
development;
|
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·
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continued
progress and cost of our research and development
programs;
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·
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progress
with pre-clinical studies and clinical trials, including the results of
our Phase 3 clinical trial expected in early
2010;
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·
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the
time and costs involved in obtaining regulatory
clearance;
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·
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costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
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·
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costs
of developing sales, marketing and distribution channels and our ability
to sell our drugs;
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9
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·
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costs
involved in establishing manufacturing capabilities for clinical trial and
commercial quantities of our drugs;
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·
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competing
technological and market
developments;
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·
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market
acceptance of our products;
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·
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costs
for recruiting and retaining management, employees and
consultants;
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·
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costs
for educating physicians;
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·
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our
status as a Bulletin-Board listed company and the prospects for our stock
being listed on a national
exchange;
|
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·
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uncertainty
and economic instability resulting from terrorist acts and other acts of
violence or war; and
|
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·
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the
condition of capital markets and the economy generally, both in the U.S.
and globally.
|
We may
consume available resources more rapidly than currently anticipated, resulting
in the need for additional funding sooner than expected. We may seek to raise
any necessary additional funds through the issuance of warrants, equity or debt
financings or executing collaborative arrangements with corporate partners or
other sources, which may be dilutive to existing stockholders or otherwise have
a material effect on our current or future business prospects. In
addition, in the event that additional funds are obtained through arrangements
with collaborative partners or other sources, we may have to relinquish economic
and/or proprietary rights to some of our technologies or products under
development that we would otherwise seek to develop or commercialize by
ourselves. If adequate funds are not available, we may be required to
significantly reduce or refocus our development efforts with regard to our drug
compounds.
The
failure to complete development of our therapeutic technology, to obtain
government approvals, including required FDA approvals, or to comply with
ongoing governmental regulations could prevent, delay or limit introduction or
sale of proposed products and result in failure to achieve revenues or maintain
our ongoing business.
Our
research and development activities and the manufacture and marketing of our
intended products are subject to extensive regulation for safety, efficacy and
quality by numerous government authorities in the United States and abroad.
Before receiving FDA clearance to market our proposed products, we will have to
demonstrate that our products are safe and effective for the patient population
for the diseases that are to be treated. Clinical trials, manufacturing and
marketing of drugs are subject to the rigorous testing and approval process of
the FDA and equivalent foreign regulatory authorities. The Federal
Food, Drug and Cosmetic Act and other federal, state and foreign statutes and
regulations govern and influence the testing, manufacturing, labeling,
advertising, distribution and promotion of drugs and medical
devices. As a result, clinical trials and regulatory approval can
take many years to accomplish and require the expenditure of substantial
financial, managerial and other resources.
In order
to be commercially viable, we must successfully research, develop, obtain
regulatory approval for, manufacture, introduce, market and distribute our
technologies. For each drug using oxidized glutathione-based
compounds, including NOV-002 and NOV-205, we must successfully meet a number of
critical developmental milestones including:
|
·
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demonstrating
benefit from delivery of each specific drug for specific medical
indications;
|
|
·
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demonstrating
through pre-clinical and clinical trials that each drug is safe and
effective; and
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·
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demonstrating
that we have established viable Good Manufacturing Practices capable of
potential scale-up.
|
The
timeframe necessary to achieve these developmental milestones may be long and
uncertain, and we may not successfully complete these milestones for any of our
intended products in development.
In
addition to the risks previously discussed, our technology is subject to
developmental risks that include the following:
|
·
|
uncertainties
arising from the rapidly growing scientific aspects of drug therapies and
potential treatments;
|
10
|
·
|
uncertainties
arising as a result of the broad array of alternative potential treatments
related to cancer, hepatitis and other diseases;
and
|
|
·
|
anticipated
expense and time believed to be associated with the development and
regulatory approval of treatments for cancer, hepatitis and other
diseases.
|
In order
to conduct the clinical trials that are necessary to obtain approval by the FDA
to market a product, it is necessary to receive clearance from the FDA to
conduct such clinical trials. The FDA can halt clinical trials at any
time for safety reasons or because we or our clinical investigators do not
follow the FDA’s requirements for conducting clinical trials. If we
are unable to receive clearance to conduct clinical trials for a product, or the
trials are halted by the FDA, we will not be able to achieve any revenue from
such product in the U.S, as it is illegal to sell any drug for use in humans in
the U.S. without FDA approval.
Data
obtained from clinical trials is susceptible to varying interpretations, which
could delay, limit or prevent regulatory clearances.
Data
already obtained, or obtained in the future, from pre-clinical studies and
clinical trials does not necessarily predict the results that will be obtained
from later pre-clinical studies and clinical trials. Moreover, pre-clinical and
clinical data is susceptible to varying interpretations, which could delay,
limit or prevent regulatory approval. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials. The failure
to adequately demonstrate the safety and effectiveness of an intended product
under development could delay or prevent regulatory clearance of the potential
drug, which would result in delays to commercialization and could materially
harm our business. Our clinical trials may not demonstrate sufficient
levels of safety and efficacy necessary to obtain the requisite regulatory
approvals for our drugs, and our proposed drugs may not be approved for
marketing.
We may
encounter delays or rejections based on additional government regulation from
future legislation or administrative action or changes in FDA policy during the
period of development, clinical trials and FDA regulatory review. We
may encounter similar delays in foreign countries. Sales of our products outside
the U.S. would be subject to foreign regulatory approvals that vary from country
to country. The time required to obtain approvals from foreign
countries may be shorter or longer than that required for FDA approval, and
requirements for foreign licensing may differ from FDA
requirements. We may be unable to obtain requisite approvals from the
FDA or foreign regulatory authorities, and even if obtained, such approvals may
not be on a timely basis, or they may not cover the uses that we
request.
Even if
we do ultimately receive FDA approval for any of our products, these products
will be subject to extensive ongoing regulation, including regulations governing
manufacturing, labeling, packaging, testing, dispensing, prescription and
procurement quotas, record keeping, reporting, handling, shipment and disposal
of any such drug. Failure to obtain and maintain required
registrations or to comply with any applicable regulations could further delay
or preclude development and commercialization of our drugs and subject us to
enforcement action.
Our
drugs or technology may not gain FDA approval in clinical trials or be effective
as a therapeutic agent, which could adversely affect our business and
prospects.
In order
to obtain regulatory approvals, we must demonstrate that each drug is safe and
effective for use in humans and functions as a therapeutic against the effects
of a disease or other physiological response. To date, studies
conducted in Russia involving our NOV-002 and NOV-205 products have shown what
we believe to be promising results. However, most of the Russian
clinical studies were completed prior to 2000 and may not have been conducted in
accordance with current guidelines either in Russia or in the United
States. While we have experienced positive preliminary results in the
earlier stage trials for certain indications in the U.S., there can be no
assurance that we can demonstrate that these products are safe or effective in
advanced clinical trials. We are also not able to give assurances
that the results of the tests already conducted can be repeated or that further
testing will support our applications for regulatory approval. As a
result, our drug and technology research program may be curtailed, redirected or
eliminated at any time. If this occurs, we may have to cease our operations
entirely.
11
There
is no guarantee that we will ever generate substantial revenue or become
profitable even if one or more of our drugs are approved for
commercialization.
We expect
to incur operating losses over the next several years as we continue to incur
costs for research and development and clinical trials. Our ability
to generate revenue and achieve profitability depends on our ability, alone or
with others, to complete the development of, obtain required regulatory
approvals for and manufacture, market and sell our proposed products.
Development is costly and requires significant investment. In
addition, if we choose to license or obtain the assignment of rights to
additional drugs, the license fees for such drugs may increase our
costs.
To date,
we have not generated any revenue from the commercial sale of our proposed
products or any drugs and do not expect to receive any such revenue in the near
future. Our primary activity to date has been research and
development. A substantial portion of the research results and
observations on which we rely were performed by third parties at those parties’
sole or shared cost and expense. We cannot be certain as to when or
whether commercialization and marketing our proposed products in development
will occur, and we do not expect to generate sufficient revenues, from proposed
product sales or otherwise, to cover our expenses or achieve profitability in
the near future.
We
rely solely on research and manufacturing facilities at various universities,
hospitals, contract research organizations and contract manufacturers for all of
our research, development, and manufacturing, which could be materially delayed
should we lose access to those facilities.
At the
present time, we have no research, development or manufacturing facilities of
our own. We are entirely dependent on contracting with third parties
to use their facilities to conduct research, development and
manufacturing. The lack of facilities of our own in which to conduct
research, development and manufacturing may delay or impair our ability to gain
FDA approval and commercialization of our drug delivery technology and
products.
We
believe that we have a good working relationship with our contractors. However,
should the situation change, we may be required to relocate these
activities on short notice, and we do not currently have access to alternate
facilities to which we could relocate our research, development and/or
manufacturing activities. The cost and time to establish or locate an
alternate research, development and/or manufacturing facility to develop our
technology would be substantial and would delay obtaining FDA approval and
commercializing our products.
We
are dependent on our collaborative arrangements for the development of our
technologies and business development, exposing us to the risk of reliance on
the viability of third parties.
In
conducting our research, development and manufacturing activities, we rely and
expect to continue to rely on numerous collaborative arrangements with
universities, hospitals, governmental agencies, charitable foundations,
manufacturers and others. The loss of any of these arrangements, or
failure to perform under any of these arrangements, by any of these entities,
may substantially disrupt or delay our research, development and manufacturing
activities, including our anticipated clinical trials.
We may
rely on third-party contract research organizations, service providers and
suppliers to support development and clinical testing of our
products. Failure of any of these contractors to provide the required
services in a timely manner or on commercially reasonable terms could materially
delay the development and approval of our products, increase our expenses and
materially harm our business, financial condition and results of
operations.
As a
result of our collaboration agreements with Mundipharma and Lee’s Pharm for the
development, manufacture and commercialization of NOV-002 in Europe, Asia and
Australia (and NOV-205 in the Chinese Territory), the commercial value of our
products in those territories will largely be dependent on the ability of these
collaborators to perform.
12
We
are exposed to product, clinical and preclinical liability risks that could
create a substantial financial burden should we be sued.
Our
business exposes us to potential product liability and other liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. In addition, the use in our clinical trials of
pharmaceutical products that we or our current or potential collaborators may
develop and then subsequently sell may cause us to bear a portion of or all
product liability risks. While we carry an insurance policy covering up to $5,000,000 per occurrence and
$5,000,000 in the
aggregate of liability incurred in connection with such claims should they
arise, there can be no assurance that our
insurance will be adequate to cover all situations. Moreover, there can be no
assurance that such insurance, or additional insurance, if required, will be
available in the future or,
if available, will be available on commercially reasonable terms. Furthermore,
our current and potential partners with whom we have collaborative agreements or
our future licensees may not be willing to indemnify us against these types of
liabilities and may not themselves be
sufficiently insured or have a net worth sufficient to satisfy any product
liability claims. A successful product liability claim or series of
claims brought against us could have a material adverse effect on our business,
financial condition and results of operations.
Acceptance
of our products in the marketplace is uncertain and failure to achieve market
acceptance will prevent or delay our ability to generate revenues.
Our
future financial performance will depend, at least in part, on the introduction
and customer acceptance of our proposed products. Even if approved
for marketing by the necessary regulatory authorities, our products may not
achieve market acceptance. The degree of market acceptance will
depend on a number of factors including:
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the
receipt of regulatory clearance of marketing claims for the uses that we
are developing;
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the
establishment and demonstration of the advantages, safety and efficacy of
our technologies;
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pricing
and reimbursement policies of government and third-party payers such as
insurance companies, health maintenance organizations and other health
plan administrators;
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our
ability to attract corporate partners, including pharmaceutical companies,
to assist in commercializing our intended products;
and
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our
ability to market our products.
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Physicians,
patients, payers or the medical community in general may be unwilling to accept,
use or recommend any of our products. If we are unable to obtain
regulatory approval or commercialize and market our proposed products as
planned, we may not achieve any market acceptance or generate
revenue.
We
may face litigation from third parties who claim that our products infringe on
their intellectual property rights, particularly because there is often
substantial uncertainty about the validity and breadth of medical
patents.
We may be
exposed to future litigation by third parties based on claims that our
technologies, products or activities infringe on the intellectual property
rights of others or that we have misappropriated the trade secrets of others.
This risk is exacerbated by the fact that the validity and breadth of claims
covered in medical technology patents and the breadth and scope of trade-secret
protection involve complex legal and factual questions for which important legal
principles are unresolved. Any litigation or claims against us, whether or not
valid, could result in substantial costs, could place a significant strain on
our financial and managerial resources and could harm our reputation. Most of
our license agreements would likely require that we pay the costs associated
with defending this type of litigation. In addition, intellectual
property litigation or claims could force us to do one or more of the
following:
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cease
selling, incorporating or using any of our technologies and/or products
that incorporate the challenged intellectual property, which would
adversely affect our ability to generate
revenue;
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obtain
a license from the holder of the infringed intellectual property right,
which license may be costly or may not be available on reasonable terms,
if at all; or
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redesign
our products, which would be costly and
time-consuming.
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13
If
we are unable to protect or enforce our rights to intellectual property
adequately or to secure rights to third-party patents, we may lose valuable
rights, experience reduced market share, assuming any, or incur costly
litigation to protect our intellectual property rights.
Our
ability to obtain licenses to patents, maintain trade secret protection and
operate without infringing the proprietary rights of others will be important to
our commercializing any products under development. Therefore, any
disruption in access to the technology could substantially delay the development
of our technology.
The
patent positions of biotechnology and pharmaceutical companies that involve
licensing agreements, including ours, are frequently uncertain and involve
complex legal and factual questions. In addition, the coverage
claimed in a patent application can be significantly reduced before the patent
is issued or in subsequent legal proceedings. Consequently, our patent
applications and any issued and licensed patents may not provide protection
against competitive technologies or may be held invalid if challenged or
circumvented. Our competitors may also independently develop products
similar to ours or design around or otherwise circumvent patents issued or
licensed to us. In addition, the laws of some foreign countries may
not protect our proprietary rights to the same extent as U.S. law.
We also
rely on trade secrets, technical know-how and continuing technological
innovation to develop and maintain our competitive position. Although
we generally require our employees, consultants, advisors and collaborators to
execute appropriate confidentiality and assignment-of-inventions agreements, our
competitors may independently develop substantially equivalent proprietary
information and techniques, reverse engineer our information and techniques, or
otherwise gain access to our proprietary technology. We may be unable
to meaningfully protect our rights in trade secrets, technical know-how and
other non-patented technology.
We may
have to resort to litigation to protect our rights for certain intellectual
property, or to determine their scope, validity or enforceability. Enforcing or
defending our rights is expensive, could cause diversion of our resources and
may not prove successful. Any failure to enforce or protect our rights could
cause us to lose the ability to exclude others from using our technology to
develop or sell competing products.
We
have limited manufacturing experience. Even if our products are
approved for manufacture and sale by applicable regulatory authorities, we may
not be able to manufacture sufficient quantities at an acceptable cost, and our
contract manufacturers could experience shut-downs or delays.
We remain
in the research and development and clinical and pre-clinical trial phase of
product commercialization. Accordingly, if our products are approved for
commercial sale, we will need to establish the capability to commercially
manufacture our products in accordance with FDA and other regulatory
requirements. We have limited experience in establishing, supervising
and conducting commercial manufacturing. If we fail to adequately
establish, supervise and conduct all aspects of the manufacturing processes, we
may not be able to commercialize our products.
We
presently plan to rely on third-party contractors to manufacture our products.
This may expose us to the risks of not being able to directly oversee the
production and quality of the manufacturing process. Furthermore, these
contractors, whether foreign or domestic, may experience regulatory compliance
difficulties, mechanical shutdowns, employee strikes or other unforeseeable acts
that may delay production.
Due
to our limited marketing, sales and distribution experience, we may be
unsuccessful in our efforts to sell our products, enter into relationships with
third parties or develop a direct sales organization.
We have
not yet had to establish marketing, sales or distribution capabilities for our
proposed products. Until such time as our products are further along in the
regulatory process, we will not devote any meaningful time and resources to this
effort. We intend to enter into agreements with third parties at the appropriate
time to sell our products or we may develop our own sales and marketing
force. However, we may be unable to establish or maintain third-party
relationships on a commercially reasonable basis, if at all. In
addition, these third parties may have similar or more established relationships
with our competitors.
14
If we do
not enter into relationships with third parties for the sale and marketing of
our products, we will need to develop our own sales and marketing
capabilities. We have limited experience in developing, training or
managing a sales force. If we choose to establish a direct sales
force, we may incur substantial additional expenses in developing, training and
managing such an organization. We may be unable to build a sales
force on a cost-effective basis or at all. Any such direct marketing and sales
efforts may prove to be unsuccessful. In addition, we will compete
with many other companies that currently have extensive marketing and sales
operations. Our marketing and sales efforts may be unable to compete
against these other companies. We may be unable to establish a
sufficient sales and marketing organization on a timely basis, if at
all.
We may be
unable to engage qualified distributors. Even if engaged, these
distributors may:
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fail
to adequately market our products;
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fail
to satisfy financial or contractual obligations to
us;
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offer,
design, manufacture or promote competing products;
or
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cease
operations with little or no
notice.
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If we
fail to develop sales, marketing and distribution channels, we would experience
delays in product sales and incur increased costs, which would harm our
financial results.
If
we are unable to convince physicians of the benefits of our intended products,
we may incur delays or additional expense in our attempt to establish market
acceptance.
Achieving
broad use of our products may require physicians to be informed regarding these
products and their intended benefits. The time and cost of such an
educational process may be substantial. Inability to successfully
carry out this physician education process may adversely affect market
acceptance of our products. We may be unable to timely educate
physicians regarding our intended products in sufficient numbers to achieve our
marketing plans or to achieve product acceptance. Any delay in
physician education may materially delay or reduce demand for our
products. In addition, we may expend significant funds towards
physician education before any acceptance or demand for our products is created,
if at all.
The
market for our products is rapidly changing and competitive, and new
therapeutics, new drugs and new treatments that may be developed by others could
impair our ability to maintain and grow our business and remain
competitive.
The
pharmaceutical and biotechnology industries are subject to rapid and substantial
technological change. Developments by others may render our technologies and
intended products noncompetitive or obsolete, or we may be unable to keep pace
with technological developments or other market factors. Technological
competition from pharmaceutical and biotechnology companies, universities,
governmental entities and others diversifying into the field is intense and is
expected to increase. Most of these entities have significantly greater research
and development capabilities and budgets than we do, as well as substantially
more marketing, manufacturing, financial and managerial resources. These
entities represent significant competition for us. Acquisitions of, or
investments in, competing pharmaceutical or biotechnology companies by large
corporations could increase our competitors’ financial, marketing, manufacturing
and other resources.
We
operate with limited day-to-day business management, serve as a vehicle to hold
certain technology for possible future exploration, and have been and will
continue to be engaged in the development of new drugs and therapeutic
technologies. As a result, our resources are limited and we may experience
management, operational or technical challenges inherent in such activities and
novel technologies. Competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competition. Some of these technologies may accomplish therapeutic effects
similar to those of our technology, but through different means. Our competitors
may develop drugs and drug delivery technologies that are more effective than
our intended products and, therefore, present a serious competitive threat to
us.
15
The
potential widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our products even if they are
commercialized. Many of our targeted diseases and conditions can also
be treated by other medication or drug delivery technologies. These
treatments may be widely accepted in medical communities and have a longer
history of use. The established use of these competitive drugs may
limit the potential for our technologies and products to receive widespread
acceptance if commercialized.
If
users of our products are unable to obtain adequate reimbursement from
third-party payers, or if new restrictive legislation is adopted, market
acceptance of our products may be limited, which could limit revenue we might
otherwise generate from sales of our products.
The
continuing efforts of government and insurance companies, health maintenance
organizations and other payers of healthcare costs to contain or reduce costs of
health care may adversely affect our ability to generate future revenues and
achieve profitability, including by limiting the future revenues and
profitability of our potential customers, suppliers and collaborative
partners. For example, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to government
control. In the U.S., federal and state governments have focused and
will likely continue to focus, on healthcare reform, including initiatives
directed at lowering the total cost of health care and the cost of prescription
pharmaceuticals, as well as other reforms of the Medicare and Medicaid systems.
While we cannot predict whether any such legislative or regulatory proposals
will be adopted, the announcement or adoption of such proposals could materially
harm our business, financial condition and results of operations.
Our
ability to commercialize our products will depend in part on the extent to which
appropriate reimbursement levels for the cost of our products and related
treatment are obtained by governmental authorities, private health insurers and
other organizations, such as health maintenance organizations (HMOs).
Third-party payers are increasingly challenging the prices charged for medical
drugs and services. Also, the trend toward managed health care in the United
States and the concurrent growth of organizations such as HMOs that could
control or significantly influence the purchase of healthcare services and
drugs, as well as legislative proposals to reform health care or change
government insurance programs, may all result in lower prices for or rejection
of our drugs. The cost containment measures that healthcare payers
and providers are instituting and the effect of any healthcare reform could
materially harm our ability to operate profitably.
We
depend on key personnel who may terminate their employment with us at any time,
and our success will depend on our ability to hire additional qualified
personnel.
Our
success will depend to a significant degree on the continued services of key
management and advisors to us. There can be no assurance that these
individuals will continue to provide service to us. In addition, our
success will depend on our ability to attract and retain other highly skilled
personnel. We may be unable to recruit such personnel on a timely
basis, if at all. Our management and other employees may voluntarily
terminate their employment with us at any time. The loss of services
of key personnel, or the inability to attract and retain additional qualified
personnel, could result in delays in development or approval of our products,
loss of sales and diversion of management resources.
Compliance with changing corporate
governance and public disclosure regulations may result in additional
expense.
Keeping
abreast of, and in compliance with, changing laws, regulations and standards
relating to corporate governance, public disclosure and internal controls,
including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event
we seek and are approved for listing on a registered national securities
exchange, the stock exchange rules, will require an increased amount of
management attention and external resources. We intend to continue to
invest all resources reasonably necessary to comply with evolving standards,
which may result in increased general and administrative expense and a diversion
of management time and attention from revenue-generating activities to
compliance activities. In our annual report for the fiscal year
ending December 31, 2010 we may be required to include an attestation
report of our independent registered public accounting firm on internal control
over financial reporting which may result in additional
costs.
16
Risks
Related to our Common Stock
In
the time that our common stock has traded, our stock price has experienced price
fluctuations.
There can
be no assurance that the market price for our common stock will remain at its
current level and a decrease in the market price could result in substantial
losses for investors. The market price of our common stock may be significantly
affected by one or more of the following factors:
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announcements or press releases
relating to the bio-pharmaceutical sector or to our own business or
prospects;
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regulatory, legislative, or other
developments affecting us or the healthcare industry
generally;
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the dilutive effect of conversion
of our Series E or Series C preferred stock into common stock or the
exercise of options and
warrants;
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sales by those financing our
company through convertible securities and warrants of the underlying
common stock, when it is registered with the SEC and may be sold into the
public market, immediately upon conversion or exercise;
and
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market conditions specific to
biopharmaceutical companies, the healthcare industry and the stock market
generally.
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There
may be a limited public market for our securities; we may fail to qualify for
listing on certain national securities exchanges.
In 2005
we filed applications for listing of our common stock on Archipelago and AMEX,
but these applications were withdrawn primarily because our stock prices did not
meet the listing requirements. Although we may reapply, there can be no
assurance if and when initial listing criteria will be met or if such
applications will be granted, or that the trading of our common stock will be
sustained. In the event that our common stock fails to qualify for
initial or continued listing on a registered stock exchange, trading, if any, in
our common stock, would then continue to be conducted on the electronic bulletin
board in the over-the-counter market and in what are commonly referred to as
‘pink sheets’. As a result, an investor may find it difficult to dispose of or
to obtain accurate quotations as to the market value of our common stock, and
our common stock may be less attractive for margin loans, for investment by
financial institutions, as consideration in future capital raising transactions
or other purposes.
Our
common stock constitutes a “penny stock” under SEC rules, which may make it more
difficult to resell shares of our common stock.
Our
common stock constitutes a “penny stock” under applicable SEC
rules. These rules impose additional sales practice requirements on
broker-dealers that recommend the purchase or sale of penny stocks to persons
other than those who qualify as “established customers” or “accredited
investors.” For example, broker-dealers must determine the
appropriateness for non-qualifying persons of investments in penny stocks and
make special disclosures concerning the risks of investments in penny
stocks.
Many
brokerage firms will discourage or refrain from recommending investments in
penny stocks. Most institutional investors will not invest in penny
stocks. In addition, many individual investors will not invest in penny stocks
due, among other reasons, to the increased financial risk generally associated
with these investments. For these reasons, the fact that our common stock is a
penny stock may limit the market for our common stock and, consequently, the
liquidity of an investment in our common stock. Although
our common stock has recently been trading at above its historic levels, our
common stock remains a “penny stock” because our tangible net assets are
insufficient to exclude our common stock from that designation. We
can give no assurance at what time, if ever, our common stock will cease to be a
“penny stock”.
17
Our
executive officers, directors and principal stockholders have substantial
holdings, which could delay or prevent a change in corporate control favored by
our other stockholders.
Holders
of our Series E preferred stock beneficially own, in the aggregate,
approximately 52% of our outstanding voting shares on an as-converted basis
(subject to certain blocking provisions that may be waived with 61 days’
notice). In addition, our executive officers, directors and other
principal stockholders own in excess of 5% of our outstanding voting shares
calculated on the same basis. The interests of our current officers, directors
and Series E investors may differ from the interests of other
stockholders. Further, our current officers, directors and Series E
investors may have the ability to significantly affect the outcome of all
corporate actions requiring stockholder approval, including the following
actions:
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the
election of directors;
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the
amendment of charter documents;
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issuance
of blank-check preferred or convertible stock, notes or instruments of
indebtedness which may have conversion, liquidation and similar features,
or completion of other financing arrangements;
or
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the
approval of certain mergers and other significant corporate transactions,
including a sale of substantially all of our assets, (and in the case of
licensing, any material intellectual property) or merger with a
publicly-traded shell or other
company.
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Our
common stock could be further diluted as the result of the issuance of
additional shares of common stock, convertible securities, warrants or
options.
In the
past, we have issued common stock, convertible securities, such as convertible
preferred stock, and warrants in order to raise money. We have also
issued options and warrants as compensation for services and incentive
compensation for our employees and directors. We have shares of
common stock reserved for issuance upon the conversion and exercise of these
securities and may increase the shares reserved for these purposes in the
future. Our issuance of additional common stock, convertible
securities, options and warrants could affect the rights of our stockholders,
could reduce the market price of our common stock or could result in adjustments
to conversion or exercise prices of outstanding preferred stock and warrants
(resulting in these securities becoming convertible into or exercisable for, as
the case may be, a greater number of shares of our common stock), or could
obligate us to issue additional shares of common stock to certain of our
stockholders.
We
are prohibited from taking certain actions and entering into certain
transactions without the consent of holders of our Series E preferred
stock.
For as
long as any shares of Series E preferred stock remain outstanding we are
prohibited from taking certain actions or entering into certain transactions
without the prior consent of specific holders of outstanding shares of Series E
preferred stock (currently consisting of Xmark
Opportunity Fund, L.P., Xmark Opportunity Fund, Ltd., and Xmark JV Investment
Partners, LLC (collectively, the “Xmark Funds”),
the OrbiMed affilated funds and Purdue ). We
are prohibited from paying dividends to common stockholders, amending our
certificate of incorporation or by-laws, issuing any equity security or any
security convertible into or exercisable for any equity security at a price of
$0.65 or less or with rights senior to the Series E preferred stock (except for
certain exempted issuances), increasing the number of shares of Series E
preferred stock or issuing any additional shares of Series E preferred stock
other than the 735 shares designated in the Series E Certificate of
Designations, or changing the number of our directors. We are also
prohibited from entering into certain transactions such as:
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selling
or otherwise granting any rights with respect to all or substantially all
of our assets (and in the case of licensing, any material intellectual
property) or the Company's business and shall not enter into a merger or
consolidation with another company unless we are the surviving
corporation, the Series E preferred stock remains outstanding, there are
no changes to the rights and preferences of the Series E preferred stock
and there is not created any new class of capital stock senior to the
Series E preferred stock;
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redeeming
or repurchasing any capital stock other than Series E preferred stock or
the related warrants; or
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incurring
any new debt for borrowed money in excess of
$500,000.
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18
Even
though our board of directors may determine that any of these actions are in the
best interest of the Company or our shareholders, we may be unable to complete
them if we do not get the approval of specific holders of the outstanding shares
of Series E preferred stock. The interests of the holders of Series E
preferred stock may differ from those of stockholders
generally. Moreover, the rights of first refusal and the exclusive
negotiation rights granted to Purdue and its independent associated companies
under the August 2009 Purchase Agreement and the collaboration agreement with
Mundipharma (our collaborator on most non-U.S. development, manufacturing and
commercialization of NOV-002) have the potential of creating situations where
the interests of the Company and those of Purdue may conflict. If we
are unable to obtain consent from each of the holders identified above, we may
be unable to complete actions or transactions that our board of directors has
determined are in the best interest of the Company and its
shareholders.
We
have not paid dividends to preferred stockholders totaling $2,412,000 as of
September 30, 2009 and we may be unable to pay dividends to preferred
stockholders when due in future periods.
Our
ability to pay cash dividends on stated future dividend payment dates will be
dependent on a number of factors including the timing of future financings and
the amount of net losses in future periods. We anticipate that future dividends
on Series E preferred stock will be paid by issuing shares of common stock or
additional shares of Series E preferred stock, which will result in additional
dilution to existing shareholders. We anticipate that the accrued unpaid
dividend on our Series C preferred stock ($668,000 at September 30, 2009)
will continue to accumulate.
FORWARD-LOOKING
STATEMENTS
Except
for historical facts, the statements in this prospectus are forward-looking
statements. Forward-looking statements are merely our current predictions of
future events. These statements are inherently uncertain, and actual events
could differ materially from our predictions. Important factors that could cause
actual events to vary from our predictions include those discussed under the
headings “Risk Factors,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business.” We assume no obligation to
update our forward-looking statements to reflect new information or
developments. We urge readers to review carefully the risk factors described in
this prospectus and the other documents that we file with the Securities and
Exchange Commission. You can read these documents at www.sec.gov .
WE
UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, NEW EVENTS OR ANY OTHER
REASON, OR REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS PROSPECTUS
OR THE DATE OF ANY APPLICABLE PROSPECTUS SUPPLEMENT THAT INCLUDES
FORWARD-LOOKING STATEMENTS.
USE
OF PROCEEDS
The
selling stockholders will receive all of the proceeds from the sale of the
shares offered for sale by them under this prospectus. We will not receive any
proceeds from the resale of shares by the selling stockholders covered by this
prospectus.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market
Information
Our
common stock has been quoted on the OTC Electronic Bulletin Board of The
National Association of Securities Dealers, Inc. under the symbol “NVLT.OB”
since June 14, 2005. The following table provides, for the periods indicated,
the high and low bid prices for our common stock. These over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
19
Fiscal
Year 2007
|
High
|
Low
|
||||||
First
quarter
|
$ | 1.24 | $ | 0.85 | ||||
Second
quarter
|
1.40 | 0.82 | ||||||
Third
quarter
|
0.90 | 0.45 | ||||||
Fourth
quarter
|
0.67 | 0.43 |
Fiscal
Year 2008
|
High
|
Low
|
||||||
First
Quarter
|
$ | 0.82 | $ | 0.43 | ||||
Second
Quarter
|
0.64 | 0.44 | ||||||
Third
Quarter
|
0.54 | 0.35 | ||||||
Fourth
Quarter
|
0.49 | 0.19 |
Fiscal
Year 2009
|
High
|
Low
|
||||||
First
Quarter
|
$ | 0.60 | $ | 0.30 | ||||
Second
Quarter
|
0.90 | 0.34 | ||||||
Third
Quarter
|
0.98 | 0.57 | ||||||
Fourth Quarter | 2.90 | 0.65 |
Fiscal
Year 2010
|
High
|
Low
|
||||||
First
Quarter (through January 25, 2010)
|
$ | 3.05 | $ | 1.75 |
On
January 25, 2010, there were 108 holders of record of our common
stock. This number does not include stockholders for whom shares were
held in a “nominee” or “street” name.
We have
not declared or paid any cash dividends on our common stock and do not
anticipate declaring or paying any cash dividends in the foreseeable
future. We are prohibited from paying any dividends on common stock
as long as any shares of our Series E preferred stock are outstanding or as long
as there are accumulated but unpaid dividends on our Series C preferred stock.
We currently expect to retain future earnings, if any, for the development of
our business.
Our
transfer agent and registrar is American Stock Transfer and Trust Company, 59
Maiden Lane, New York, NY 10038.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We are a
biopharmaceutical company, established in 1996, commercializing oxidized
glutathione-based compounds for the treatment of cancer and
hepatitis.
NOV-002,
our lead compound, is currently in Phase 3 development for non-small cell lung
cancer. NOV-002 is intended for use in combination with chemotherapy
to act as a chemopotentiator and chemoprotectant. Three
separate Phase 2 trials demonstrated clinical activity and safety of NOV-002 in
combination with chemotherapy in non-small cell lung cancer. In May
2006, we finalized a Special Protocol Assessment (SPA) with the FDA for a single
pivotal Phase 3 trial in advanced non-small cell lung cancer in combination with
first-line chemotherapy, and received Fast Track designation in August 2006.
Patient enrollment commenced in November 2006 and targeted enrollment was
reached in March 2008. The primary endpoint of the Phase 3 trial is
increased median overall survival, to be measured following the occurrence of
725 events (patient deaths). On January 7, 2010, we announced that
the 725th event (patient death) had been reached in this trial, thus triggering
the steps toward the pre-specified analysis according to the trial’s Statistical
Analysis Plan (“SAP”). We anticipate that top-line results for this
trial will be available later in the first quarter
of 2010.
NOV-002
is also being developed to treat early-stage breast cancer. In June 2007 we
commenced enrollment in a U.S. Phase 2 neoadjuvant breast trial, which is
ongoing at The University of Miami to evaluate the ability of NOV-002 to enhance
the effectiveness of chemotherapy. As presented at the San Antonio
Breast Cancer Symposium (December 2008) six pathologic complete responses
occurred in the first 15 women (40%) who have completed chemotherapy and
undergone surgery, which is much greater than the historical control of less
than 20% in HER-2 negative patients. Furthermore, patients
experienced decreased hematologic toxicities.
NOV-002
is also being developed to treat chemotherapy-resistant ovarian
cancer. In a U.S. Phase 2 chemotherapy-resistant ovarian cancer trial
at Massachusetts General Hospital and Dana-Farber Cancer Institute from July
2006 through May 2008, NOV-002 (plus carboplatin) slowed progression of the
disease in 60% of evaluable patients (nine out of 15 women). The median
progression-free survival was 15.4 weeks, almost double the historical control
of eight weeks. These results were presented at the American Society of Clinical
Oncology in May 2008.
20
Based on
results to-date, we intend to initiate several Phase 2 trials with NOV-002 in
these and possibly other cancer indications. Our ability to initiate
these trials, and the timing of such trials, will depend on available funding,
principally from collaborative arrangements or the issuance of debt or equity
securities.
NOV-205,
our second compound, is intended for use as a hepatoprotective agent with
immunomodulating and anti-inflammatory properties. A U.S. Phase 1b
clinical trial in patients who previously failed treatment with pegylated
interferon plus ribavirin was completed in December 2007. Based on
favorable safety results of that trial, we plan to initiate a longer duration,
proof-of-concept trial in the first half of 2010, provided that we obtain
the additional funding necessary for that purpose. However, there can
be no assurance that such funding will be available.
Both
compounds have completed clinical trials in humans and have been approved for
use in Russia, where they were originally developed. We own all
intellectual property rights worldwide, excluding the Russian Territory, related
to compounds based on oxidized glutathione, including NOV-002 and NOV-205. Our
patent portfolio includes six U.S. issued patents, two European issued patents
and one Japanese issued patent.
We
entered into a collaboration agreement with Mundipharma to develop, manufacture
and commercialize NOV-002 in Europe (other than the Russian Territory), most of
Asia (other than the Chinese Territory) and Australia. We have a
collaboration agreement with Lee’s Pharm to develop, manufacture and
commercialize NOV-002 and NOV-205 in the Chinese Territory.
Results
of Operations
Revenue. Revenue
consists of amortization of license fees received in connection with partner
agreements and income received from a grant from the U.S. Department of Health
and Human Services.
Research
and development
expense. Research and development expense
consists of costs incurred in identifying, developing and testing product
candidates, which primarily
consist of salaries and related expenses for personnel, fees paid to
professional service providers for independent monitoring and analysis of our
clinical trials, costs of contract research and manufacturing and costs to
secure intellectual property. We are currently developing two proprietary compounds, NOV-002 and
NOV-205. To date, most of our research and
development costs have been associated with our NOV-002
compound.
General
and administrative expense. General and administrative
expense consists primarily of salaries and other related costs for personnel in
executive, finance and administrative functions. Other costs include facility
costs, insurance, costs for public and investor relations, directors’ fees and
professional fees for legal and accounting services.
Years Ended December 31, 2008 and
2007
Revenue. During
the year ended December 31, 2008 we recognized $33,000 in license fees in
connection with our collaboration agreement with Lee’s Pharm, which commenced in
December 2007. Under the terms of this agreement, the Company
received an upfront license fee of $500,000 in March 2008 and is entitled to
receive up to $1,700,000 in future milestone payments upon the completion of
development and marketing milestones by Lee’s Pharm. The $500,000
initial payment received is being amortized over the estimated term of the
agreement, 15 years. During the year ended December 31, 2008, we also
recognized $93,000 in grant revenue related to a grant received from the U.S.
Department of Health and Human Services. The related costs are included as a
component of research and development expense.
21
Research and
Development. Research and
development expense for the year ended December 31, 2008 was $14,527,000, compared to $17,428,000 for the year ended December 31, 2007. The $2,901,000, or 17%, decrease in res
earch and development expense was due to a combination of factors. In
March 2008, we reached the enrollment target for our Phase 3 clinical trial of
NOV-002, and an increasing number of patients completed their treatment regimen
through the end of 2008. As a result, certain clinical costs
have leveled out or declined. The cost of the chemotherapy drug to be provided
to patients at clinical sites in Europe decreased by
$1,669,000. Clinical investigator expenses, which are affected by the
number of patients that remain on treatment, decreased by
$952,000. Drug
manufacturing and
distribution costs (including storing and shipping
chemotherapy drug) decreased by $777,000. Salaries and related costs
increased $385,000, principally from the hiring of additional personnel in late
2007 and early 2008 as well as salary increases that were effective at the
beginning of 2008. Overhead costs such as travel and postage
increased by $130,000.
General and
Administrative. General
and administrative expense
for the year ended December 31, 2008 was $2,190,000, compared to $2,866,000 for the year ended December 31, 2007. The $676,000, or 24%, decrease in general and administrative expense was due principally
to a $799,000 decrease in accrued expense for potential liquidated damages
associated with registration rights agreements. We had accrued an
estimate for such damages in 2007 and those damages were then waived in
connection with the sale of Series D preferred stock during 2008 (see Note
6). Stock-based compensation also decreased by $53,000 in the year
ended December 31, 2008 compared to the prior year. These decreases
were partially offset by a $144,000 increase in professional fees, principally
those related to partnering and investor activities and a $32,000 increase in
salary, directors’ fees and overhead.
Interest
Income. Interest income
for the year ended December
31, 2008 was $131,000 compared to $730,000 for the same period in 2007. This
decrease is a result of lower cash balances as well as a decline in prevailing
interest rates.
Preferred Stock
Dividends. During the year ended December 31, 2008 we paid cash dividends on shares of Series B and C preferred stock of
$740,000 and accrued $1,689,000 of dividends due to shares of Series C and D preferred
stock. The accrued dividends were not paid because we did not
have legally available funds for the payment of dividends under Delaware
corporate law. In February 2009, all outstanding shares of Series D
preferred stock and associated rights, including accrued dividends totaling
$1,597,000 ($1,396,000 of which had accrued at December 31, 2008) were exchanged
for approximately 445.5 shares of Series E preferred stock. During the year ended December 31, 2008
we also recorded deemed
dividends to preferred stockholders totaling $4,417,000. This amount represents the
value attributed to the reduction in exercise and conversion
prices of the warrants and preferred stock issued in May 2007 in connection with
the financing that occurred in April 2008, as described in Note 6 to the
financial statements.
The deemed dividends, cash dividends and accrued dividends have been included in the calculation of
net loss attributable to common stockholders of $22,961,000, or $0.56 per
share, for the year ended December 31, 2008. The deemed dividends and
cash dividends are excluded from our net loss (from operating activities) of
$16,451,000 or $0.40 per share, for the year ended December 31,
2008.
During the year ended December 31, 2007 we paid cash dividends on shares of Series A and C preferred stock of $261,000 and dividends of $563,000 on
shares of Series B preferred stock. An additional $337,000 of
dividends were declared and accrued but not paid on shares of Series B preferred
stock. During the year ended December 31, 2007 we also recorded deemed dividends on preferred stock totaling $9,003,000 (including a payment of
$40,000 made upon the exchange of shares of Series A preferred stock for shares
of Series C preferred stock). This amount represents the value
attributed to the beneficial conversion feature of the Series B preferred stock of $7,824,000 and the
fair value of warrants and cash of $1,179,000 transferred to the former holders
of Series A preferred stock in connection with the exchange of such shares for
shares of Series C preferred stock that were subordinated to the Series B
shares. The deemed
dividends and cash dividends have been included
in the calculation of net loss attributable to common stockholders of
$29,721,000, or $0.76 per share, for the year ended December 31,
2007. The deemed dividends and cash dividends are excluded from our
net loss (from operating activities) of $19,557,000 or $0.50 per share, for the
year ended December 31, 2007.
Nine
Months Ended September 30, 2009 and 2008
Revenue. During
the nine months ended September 30, 2009 and 2008, we recognized $25,000 in
license fees in connection with our collaboration agreement with Lee’s
Pharm. During the nine months ended September 30, 2009 and 2008, we
also recognized $52,000 and $65,000, respectively, in grant revenue related to a
grant received from the U.S. Department of Health and Human Services. The
related costs are included as a component of research and development expense.
22
Research and
Development. Research and development expense for
the nine months ended September 30, 2009 was $5,138,000, compared to $12,929,000
for the same period in 2008. The $7,791,000, or 60%, decrease in research and
development expense was due to a combination of factors. In March
2008, we reached the enrollment target for our Phase 3 clinical trial of
NOV-002, and an increasing number of patients completed their treatment regimen
throughout 2008. As a result, certain clinical costs have
leveled off or declined. Contract research services such as those related to
clinical research organizations, consultants and central laboratory services
decreased by $3,115,000. Clinical investigator expenses, which are
affected by the number of patients that remain on treatment, decreased by
$2,406,000. The cost of chemotherapy drug to be provided to patients
in Europe decreased by $1,728,000 and drug manufacturing and distribution costs
(including storing and shipping chemotherapy drug) decreased by $416,000.
Salaries and overhead costs decreased by $204,000. These decreases
were offset by a $78,000 increase in stock compensation expense.
General and
Administrative. General and administrative expense
for the nine months ended September 30, 2009 was $1,529,000. We recorded general
and administrative expense of $1,602,000 for the same period in 2008. However,
during the nine months ended September 30, 2008 we recorded a $404,000 credit to
account for a waiver of potential liquidated damages associated with
registration rights agreements. We had previously accrued an estimate
for such damages in 2007. Without this $404,000 credit, general and
administrative expense during the nine months ended September 30, 2008 would
have been $2,006,000, representing a decrease of $477,000, or 24%, during the
nine months ended September 30, 2009 compared to the same period in the prior
year. This decrease is due principally to a $303,000 decrease in
professional fees and a $268,000 decrease in salaries and overhead costs, which
were a result of actions taken to reduce discretionary spending in order to
conserve cash. The decrease was partially offset by an increase in stock-based
compensation of $94,000.
Interest
Income. Interest income for the nine months ended
September 30, 2009 was $1,000 compared to $123,000 for the same period in
2008. Beginning in March 2009, our cash was on deposit in a
non-interest bearing account that is fully insured by the FDIC.
Loss on Derivatives. Effective
January 1, 2009, we adopted the guidance of FASB ASC 815-40, Derivatives and Hedging and,
as a result, we recorded a loss on derivatives of $2,830,000 during the nine
months ended September 30, 2009. This amount represents the increase in fair
value, during the nine months ended September 30, 2009, of outstanding warrants
which contain “down-round” anti-dilution provisions whereby the number of shares
for which the options are exercisable and/or the exercise price of the warrants
is subject to change in the event of certain issuances of stock at prices below
the then-effective exercise prices of the warrants. During the nine months ended
September 30, 2009, an aggregate of 2,084,308 shares of the Company’s common
stock with a fair value of $1,626,000 were issued in exchange for the tender of
certain of these warrants. The difference of $517,000 between the
fair value of the warrants at the date of exchange and the fair value of the
common stock issued to settle the derivative liability has been included as a
component of the loss on derivatives in the nine months ended September 30,
2009.
Preferred Stock Dividends. During the
nine months ended September 30, 2009, we accrued $2,496,000 in dividends with
respect to our Series C, D and E preferred stock. On February 11, 2009, all
shares of Series D preferred stock and accrued dividends thereon totaling
$1,597,000 (including $202,000 that accrued during 2009 prior to the
exchange) were exchanged for approximately 445.5 shares of Series E preferred
stock. The remaining accrued dividends have not been paid. During the nine
months ended September 30, 2009, we also recorded deemed dividends on
preferred stock totaling $714,000. This amount was recorded in
connection with the financing that occurred in February 2009 and represents the
value attributed to the modification of certain warrants less the net adjustment
required to record the newly issued shares of Series E preferred stock at fair
value, as described in Note 6 to the financial statements.
During
the nine months ended September 30, 2008, we paid cash dividends to Series B and
Series C preferred stockholders of $740,000 and accrued $1,060,000 of dividends
due to our Series B, C and D preferred stockholders. During the nine
months ended September 30, 2008 we also recorded deemed dividends to preferred
stockholders totaling $4,417,000. This amount represents the value
attributed to the reduction in exercise and conversion prices of the warrants
and preferred stock issued in May 2007 in connection with the financing that
occurred in April 2008.
23
The
deemed dividends, cash dividends and accrued dividends have been included in the
calculation of net loss attributable to common stockholders of $12,623,000, or
$0.27 per share, for the nine months ended September 30, 2009 and $20,194,000,
or $0.50 per share, for the nine months ended September 30, 2008. The
deemed dividends and cash dividends are excluded from our net loss (from
operating activities) of $9,413,000, or $0.20 per share, for the nine months
ended September 30, 2009 and $14,312,000, or $0.36 per share, for the nine
months ended September 30, 2008.
Liquidity
and Capital Resources
We have
financed our operations since inception through the sale of securities and the
issuance of debt (which was subsequently paid off or converted into equity). As
of September 30, 2009, we had $5,567,000 in cash and equivalents.
During
the nine months ended September 30, 2009, approximately $8,331,000 in cash was
used in operations, primarily due to a net loss of $9,413,000, a net decrease of
$1,965,000 in accounts payable and accrued liabilities and an increase in
prepaid expenses of $230,000. Other changes in working capital used
cash of $78,000. The cash impact of the net loss was reduced by a $2,830,000
non-cash loss on derivatives, non-cash stock-based compensation expense of
$503,000 and depreciation and amortization of fixed assets totaling $22,000.
During
the nine months ended September 30, 2009, we purchased $18,000 in fixed
assets. We received net proceeds of $9,205,000 from the sale of our
Series E preferred stock and received net proceeds of $3,449,000 from the sale
of common stock.
The
primary endpoint of our Phase 3 clinical trial for NOV-002 in non-small cell
lung cancer is increased median overall survival, to be measured following the
occurrence of 725 events (patient deaths). On
January 7, 2010, we announced that the 725th event
(patient death) had been reached in this trial, thus triggering the steps toward
the pre-specified analysis according to the trial’s Statistical Analysis
Plan. We anticipate that the top-line results from this trial will
be available later in the first quarter of 2010. On August 25,
2009, we entered into the August 2009 Purchase Agreement with Purdue
contemplating the issuance and sale at two or more closings of up to 13,636,364
shares of our common stock and warrants to purchase 4,772,728 shares of our
common stock at an exercise price of $0.66 per share, expiring December 31,
2015, for an aggregate purchase price of $9,000,000. All shares and
warrants were sold in closings held on August 25, 2009 and November 10, 2009.
At the
initial closing on August 25, 2009, the Company sold Purdue 5,303,030 shares of
common stock and a warrant to purchase 1,856,062 shares of common stock for
gross proceeds of $3,500,000. At the final closing under the August
2009 Purchase Agreement on November 10, 2009, the Company sold Purdue 8,333,334
shares of Novelos common stock and warrants to purchase 2,916,668 shares of
Novelos common stock for gross proceeds of $5,500,000. The August
2009 Purchase Agreement required us to adopt an expanded development and
regulatory plan for NOV-002 (the “Plan”) which contemplates substantial
expenditures through mid-2010 in addition to clinical development expenditures
previously contemplated for the completion of the Phase 3 trial. We
are required to use proceeds from the sale of securities under the August 2009
Purchase Agreement for the expenditures identified in the Plan. We believe that
the available funds at September 30, 2009, plus the proceeds from the final
closing under the August 2009 Purchase Agreement, will allow us to operate
beyond the conclusion of the Phase 3 trial and into the third quarter of
2010.
The
completion of the Phase 3 clinical trial is likely to significantly affect our
ability to finance continued operations beyond the third quarter of
2010. If the results are favorable, we believe we will be able to
obtain adequate funding to pursue its strategic objectives and clinical
development programs longer term. If the results of the Phase 3
clinical trial are not favorable, we may be unable to obtain additional funding
and may be required to scale back administrative activities and clinical
development programs, or cease our operations entirely. Furthermore,
adverse conditions in the capital markets globally may impair our ability to
obtain capital in a timely manner.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States (GAAP) requires
management to make certain estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
periods presented. Actual results could differ from those
estimates. We review these estimates and assumptions periodically and
reflect the effects of revisions in the period that they are determined to be
necessary.
We
believe that the following accounting policies reflect our more significant
judgments and estimates used in the preparation of our financial
statements.
24
Accrued
Liabilities. As part of the process of preparing financial
statements, we are required to estimate accrued liabilities. This process
involves identifying services that have been performed on our behalf, and
estimating the level of service performed and the associated cost incurred for
such service as of each balance sheet date in our financial statements. Examples
of estimated expenses for which we accrue include: contract service fees such as
amounts paid to clinical research organizations and investigators in conjunction
with clinical trials; fees paid to contract manufacturers in conjunction with
the production of clinical materials; and professional service fees, such as for
lawyers and accountants. In connection with such service fees, our
estimates are most affected by our understanding of the status and timing of
services provided relative to the actual levels of services incurred by such
service providers. The majority of our service providers invoice us
monthly in arrears for services performed. In the event that we do
not identify certain costs that have begun to be incurred, or we over- or
underestimate the level of services performed or the costs of such services, our
reported expenses for such period would be too high or too low. The
date on which certain services commence, the level of services performed on or
before a given date and the cost of such services are often determined based on
subjective judgments. We make these judgments based on the facts and
circumstances known to us in accordance with generally accepted accounting
principles.
Stock-based Compensation. We account for
stock-based compensation in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”). Topic 740, Compensation,
Stock Compensation which requires measurement of the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost is recognized over the period during which an
employee is required to provide service in exchange for the award, the requisite
service period (usually the vesting period). We account for transactions in
which services are received from non-employees in exchange for equity
instruments based on the fair value of such services received or of the equity
instruments issued, whichever is more reliably measured, in accordance with the
guidance of FASB ASC Topic 740 and FASB ASC Topic 505, Equity.
Accounting
for equity instruments granted or sold by us under accounting guidance requires
fair-value estimates of the equity instrument granted or sold. If our estimates
of the fair value of these equity instruments are too high or too low, our
expenses may be over- or understated. For equity instruments granted or sold in
exchange for the receipt of goods or services, we estimate the fair value of the
equity instruments based on consideration of factors that we deem to be relevant
at that time.
BUSINESS
Overview
We were
incorporated in June 1996 as AVAM International, Inc. In October
1998, Novelos Therapeutics, Inc., a newly incorporated entity, merged into AVAM,
and the name of AVAM was changed to Novelos Therapeutics, Inc. In
2005, we completed a two-step reverse merger with Common Horizons, Inc., and its
wholly-owned subsidiary Nove Acquisition, Inc. Following the merger,
the surviving corporation was Novelos Therapeutics, Inc.
We are a
biopharmaceutical company commercializing oxidized glutathione-based compounds
for the treatment of cancer and hepatitis. NOV-002, our lead
compound, is currently in Phase 3 development for treatment of lung cancer under
a Special Protocol Assessment and Fast Track. NOV-002 is also in
Phase 2 development for treatment of early-stage breast cancer and
chemotherapy-resistant ovarian cancer. In February 2009, Novelos entered into a
collaboration agreement with Mundipharma to develop, manufacture and
commercialize NOV-002 in Europe (other than the Russian Territory), Asia (other
than the Chinese Territory) and Australia. NOV-205, our second
compound, is in Phase 1b development for the treatment of chronic hepatitis C in
non-responders. We have a collaboration agreement with Lee’s Pharm
for development, manufacturing and commercialization of both compounds in the
Chinese Territory.
NOV-002,
our lead compound, acts together with chemotherapy as a chemopotentiator and a
chemoprotectant. Three separate Phase 2 trials demonstrated clinical
activity and safety of NOV-002 in combination with chemotherapy in non-small
cell lung cancer. In May 2006, we finalized a Special Protocol
Assessment (SPA) with the U.S. Food and Drug Administration (FDA) for a single
pivotal Phase 3 trial in non-small cell lung cancer and obtained Fast Track
designation in August 2006. The primary endpoint of this trial is improvement in
median overall survival. We commenced patient enrollment in November 2006 and
reached our enrollment target of 840 patients in March 2008. On
January 7, 2010, we announced that the 725th event
(patient death) had been reached in this trial, thus triggering the steps toward
the pre-specified analysis according to the trial’s Statistical Analysis
Plan. We expect that the top-line results of this trial will be
available later in the first quarter of 2010.
25
NOV-002
is also being developed to treat early-stage breast cancer. In June 2007 we
commenced enrollment in a U.S. Phase 2 neoadjuvant breast cancer trial, which is
ongoing at The University of Miami to evaluate the ability of NOV-002 to enhance
the effectiveness of chemotherapy. As presented at the San Antonio
Breast Cancer Symposium in December 2008, six pathologic complete responses
occurred in the first 15 women (40%) who have completed chemotherapy and
undergone surgery, which is much greater than the less than 20% historical
expectation in HER-2 negative patients. Furthermore, patients
experienced decreased hematalogic toxicities.
NOV-002
is also being developed to treat chemotherapy-resistant ovarian
cancer. In a U.S. Phase 2 chemotherapy-resistant ovarian cancer trial
conducted at Massachusetts General Hospital and Dana-Farber Cancer Institute
from July 2006 through May 2008, NOV-002 (plus carboplatin) slowed progression
of the disease in 60% of evaluable patients (9 out of 15 women). The median
progression-free survival was 15.4 weeks, almost double the historical control
of 8 weeks. These results were presented at the American Society of Clinical
Oncology in May 2008.
Based on
results to date, we intend to initiate several Phase 2 trials with NOV-002 in
these and possibly other cancer indications. Our ability to initiate
these trials will depend on available funding, principally from partnering
arrangements or the issuance of debt or equity securities.
NOV-205,
our second compound, acts as a hepatoprotective agent with immunomodulating and
anti-inflammatory properties. Our Investigational New Drug
Application for NOV-205 as monotherapy for chronic hepatitis C has been accepted
by the FDA. A U.S. Phase 1b clinical trial in patients who previously
failed treatment with pegylated interferon plus ribavirin was completed in
December 2007. Based on favorable safety results of that trial, we
plan to initiate a longer duration, proof-of-concept trial in the first
half of 2010, provided that we obtain the additional funding necessary
for that purpose.
Both compounds have completed clinical
trials in humans and have been approved for use in Russia, where they were
originally developed. We own all intellectual property rights
worldwide (excluding the Russian Territory), related to compounds based on
oxidized glutathione, including NOV-002 and NOV-205.
Our
intellectual property portfolio of issued patents includes six U.S. patents, two
European patents and one Japanese patent. Overall, we have filed more
than thirty patent applications worldwide, with coverage including composition
of matter, method of use and manufacturing. We believe that the breadth of our
intellectual property will allow us to expand our product pipeline by claiming
and commercializing additional compounds that are based on oxidized
glutathione.
Business
Strategy
Our
primary objective is to fully exploit our proprietary scientific and
intellectual property portfolio in oxidized glutathione-based
therapeutics. NOV-002, currently in Phase 3 development in the U.S.
and Europe, has demonstrated an excellent safety and efficacy profile in Russia
as a combination treatment with chemotherapy for many different cancers
particularly in non-small cell lung cancer, an indication with large and growing
unmet medical needs. For example, according to a 1996-1998 Russian
non-small cell lung cancer trial, NOV-002 increased the one-year survival rate
from 17% to 63% (p<0.01) when used in combination with
chemotherapy. This result represented an 80% improvement over the
U.S. survival rate of 35% that results from the current standard of
care. Positive results in a controlled U.S-based Phase 1/2 non-small
cell lung cancer study completed in August 2005 were consistent with the
positive results obtained in earlier Russian clinical studies.
We intend
to obtain a U.S marketing partner for NOV-002 after the non-small cell lung
cancer Phase 3 clinical trial results are available (expected early
2010). In February 2009, we entered into a collaboration with
Mundipharma under which we granted Mundipharma exclusive rights to develop,
manufacture and commercialize NOV-002 in Europe (other than the Russian
Territory), Asia (other than the Chinese Territory) and Australia. In
December 2007 we entered into a collaboration agreement with Lee’s Pharm under
which we granted Lee’s Pharm exclusive rights to develop, manufacture and
commercialize NOV-002 for cancer and NOV-205 for hepatitis in the Chinese
Territory.
26
In legacy
Russian clinical studies, NOV-205 has demonstrated the ability to substantially
decrease the serum viral load of patients with either hepatitis B or C as well
as to restore normal liver function as evidenced by blood biochemical markers.
In the U.S., both hepatitis B and C are relatively large markets, but hepatitis
B is reasonably well served. Therefore, we intend to concentrate
clinical development efforts on chronic hepatitis C, which we believe represents
a more direct path to regulatory approval and has the potential to provide
patients with an improved therapy regimen compared to those currently
available. In December 2007, based on a favorable safety profile, we
concluded a U.S. Phase 1b clinical trial for the treatment of chronic hepatitis
C in non-responders. We plan to commence a proof-of-concept trial in
the event we obtain the additional funding necessary for that
purpose. In the event that we are able to complete this trial
successfully, we intend to explore licensing opportunities with third parties
for the development, manufacture and commercialization of NOV-205.
Technology
Overview
Glutathione
is a naturally occurring substance present in nearly all cells of the
body. The glutathione pathway consists of oxidized glutathione, the
primary component of NOV-002 and NOV-205, and associated metabolic
enzymes. It is considered within the medical research community to be
the most important cellular system for protection against the toxic effects of a
variety of cell-damaging molecules. More recently, it has become
evident that in addition to this cell-protective role, a key function of the
glutathione system is to dynamically regulate cell function by reversibly
altering the structure of proteins via a process termed
glutathionylation. The resulting activation/inhibition of protein
function is analogous to the much-studied role of protein phosphorylation as a
cellular regulatory mechanism.
Protein
S-glutathionylation attendant to cellular redox changes at the cell surface and
intracellularly are known to affect a variety of critical cell functions,
including:
|
·
|
Cell
signaling pathways
|
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·
|
Cytoskeletal
structure/function
|
|
·
|
Protein
folding/stability
|
|
·
|
Calcium
homeostasis
|
|
·
|
Energy
metabolism
|
|
·
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Redox
homeostasis
|
In
addition, changes in the ratio of reduced to oxidized forms of glutathione
(GSH/GSSG) can modulate protein phosphorylation in signal pathways, further
amplifying the impact of redox changes on cell function. Examples of
redox-sensitive gene expression include regulation of gene transcription factors
such as NFkB and AP-1, which have been shown to have pivotal roles in the
regulation of many genes involved in immune and inflammatory responses,
including cytokines and growth factors. The activities of other
immune/inflammation regulatory proteins are also sensitive to GSH/GSSG (e.g.,
mitogen-activated protein kinases, or MAPKs) as are elements of the cytoskeleton
(e.g., actin) that control interaction and communication between the cells and
their surrounding environment (e.g., extracellular matrix) and cell surface
proteins (e.g., protein disulfide isomerase, or PDI), which have been implicated
in the modulation of tumor cell invasiveness and metastasis.
Importantly,
it has been shown that oxidized glutathione itself is capable of causing protein
glutathionylation, leading to changes in cell signaling pathway
function. Thus, GSSG, or NOV-002, added to cells can result in a
rapid, transient alteration of cell surface or intracellular redox state by
shifting the equilibrium towards the formation of mixed disulfides with protein
thiols. This is accompanied by glutathionylation of cellular proteins
and alterations in phosphorylation of signaling proteins (e.g., MAPKs, AKT,
JAK2, STAT5).
27
Findings
with NOV-002 and NOV-205 in animals and humans are consistent with a variety of
known effects of modulating cellular redox status (e.g., blood precursor cell
proliferation (hematopoiesis)), modulation of cytokine and growth factor
production (including those known to control production of blood cells), immune
system modulation, and cytoskeletal alterations that may impact the migration
and invasiveness of tumor cells. Identification of the precise
molecular targets of the GSSG component of NOV-002 and NOV-205, which would
account for their clinical effects, is the subject of ongoing
study.
Products
in Development
Our
current developmental pipeline of drugs is based on oxidized glutathione, a
natural metabolite that has shown excellent safety as well as clinical efficacy
in numerous cancers, hepatitis B and C, HIV, psoriasis, tuberculosis and certain
other diseases. The lead products are believed to act via modulation
of critical regulatory molecules that mediate immune function, tumor progression
(in combination with chemotherapy), and drug detoxification.
NOV-002
NOV-002
is an injectable, small-molecule formulation of a natural metabolite that is
currently being developed for use in combination with chemotherapy for treatment
of lung, breast and ovarian cancers.
NOV-002
for Non-Small Cell Lung Cancer
In the
U.S., NOV-002 is in Phase 3 development for treatment of non-small cell lung
cancer under a Special Protocol Assessment with Fast Track
designation. NOV-002 is approved in Russia for general medicinal
usage as an immunostimulant in combination with chemotherapy and antimicrobial
therapy, and specifically for indications such as tuberculosis and
psoriasis. Efficacy and excellent safety have been demonstrated in
trials with 390 patients in Russia across numerous types of cancer including
non-small cell lung cancer, breast cancer, ovarian cancer, colorectal cancer and
pancreatic cancer. Since the Russian Ministry of Health approval in
1998, it is estimated that NOV-002 has been administered to over 10,000
patients.
According
to the American Cancer Society, about 1.44 million U.S. men and women were
expected to be diagnosed with cancer in 2008. Over 566,000 U.S.
cancer patients were expected to die in 2008, which makes cancer the second
leading cause of death in the U.S., exceeded only by deaths related to heart
disease. Lung cancer is the leading cause of cancer death in the
U.S. According to the American Cancer Society, approximately 215,000
people were expected to be diagnosed with lung cancer in 2008 in the U.S., with
approximately 162,000 deaths. According to the American Cancer
Society, approximately 1,500,000 new cases of lung cancer were expected
worldwide in 2007 and approximately 1,350,000 deaths were projected from lung
cancer in 2007. According to a Decision Resources report dated July
2009, the pharmaceutical market for treating non-small cell lung cancer was
approximately $3.5 billion in the U.S., France, Germany, Italy, Spain, the
United Kingdom and Japan, and is expected to grow to greater than $10 billion by
2018. Non-small
cell lung cancer accounts for more than 80% of lung cancer. Only
about 15% of non-small cell lung cancer patients are diagnosed early enough to
be eligible for surgery.
Platinum-based
chemotherapy regimens are standard first-line treatment for advanced non-small
cell lung cancer patients, since these patients are not eligible for
surgery. Carboplatin and paclitaxel are the most common combination
therapy in the U.S., while cisplatin and gemcitabine are more common in
Europe. During treatment, patients continue to be subject to serious
adverse effects. According to the published results of 12 Phase 3
clinical trials conducted as recently as 2008, the one-year survival rate
for patients receiving paclitaxel and carboplatin first-line therapy is
typically only about 40%, weighted average median survival is approximately 9.7
months and the objective tumor response (defined as greater than 30% tumor
shrinkage) rate is about 27%. Overall, fewer than 5% of advanced
non-small cell lung cancer patients survive five years. Docetaxel is
approved for use as second-line treatment of non-small cell lung
cancer. New dosing regimens with existing cytotoxic drugs are likely
to provide only incremental improvements in efficacy and/or safety, and are
expensive. Similarly, targeted biologic therapies, such as Astra
Zeneca’s IRESSA®, OSI’s TARCEVA®, Genentech’s AVASTIN® and ImClone’s
ERBITUX®, may offer some benefit for certain patient subpopulations, but overall
efficacy has remained low. Moreover, there are significant safety
concerns and the costs to manufacture are very high. Thus, there is
an unmet need for efficacious, and cost-effective, treatments for non-small cell
lung cancer, particularly for late-stage patients.
28
NOV-002
can be distinguished from other drugs for non-small cell lung cancer on the
market or in development because, based on available data, NOV-002 possesses the
key attributes of safety, potentiation of chemotherapy (increased survival rates
and better anti-tumor effects) and improved recovery from chemotherapy
toxicity. In a controlled randomized U.S. Phase 1/2 clinical trial,
advanced non-small cell lung cancer patients treated with NOV-002 in combination
with paclitaxel and carboplatin demonstrated improved objective tumor response
(69% of the patients treated with NOV-002 plus chemotherapy had 50% or greater
tumor shrinkage versus only 33% of the patients treated with chemotherapy alone,
p<0.05) and higher tolerance of chemotherapy versus the control group
(p<0.01). In a controlled randomized Russian trial, when used in
combination with cisplatin-based chemotherapy, NOV-002 increased the one-year
survival of advanced non-small cell lung cancer patients from 17% to 63%,
p<0.01 (versus 35% typical in the U.S.). On the basis of U.S. and
Russian data, we believe that NOV-002 may be used in combination with first-line
chemotherapy treatments and may be complementary to second-line and recently
emerging third-line products. Furthermore, we believe that NOV-002
may have utility in all stages of non-small cell lung cancer and in other solid
tumor types as well.
The
Russian non-clinical and clinical data set (which includes clinical safety and
efficacy data, extensive animal toxicology studies and a comprehensive chemistry
and manufacturing package) was accepted by the FDA as the basis of an
Investigational New Drug (IND) application, leading to a Novelos-sponsored Phase
1/2 clinical trial in advanced non-small cell lung cancer in late
1999. The aim of the Phase 1/2 clinical trial was to demonstrate
safety, detect trends towards efficacy, compare routes of administration and
support initiation of a Phase 3 trial. We finalized a Special
Protocol Assessment with the FDA in May 2006 for a single pivotal Phase 3 trial
in advanced non-small cell lung cancer in combination with first-line
chemotherapy, and obtained Fast Track designation in August 2006. The
primary endpoint of this trial is improvement in median overall survival, and we
reached our enrollment target of 840 patients in March 2008. On
January 7, 2010, we announced that the 725th event
(patient death) had been reached in this trial, thus triggering the steps toward
the pre-specified analysis according to the trial’s Statistical Analysis Plan.
We expect that the top-line results of this trial will be available later in the
first quarter of 2010.
In the
U.S. Phase 1/2 non-small cell lung cancer clinical trial of NOV-002, 44
chemotherapy-naive late-stage lung cancer patients (i.e. patients who had not
received prior chemotherapy) were randomized to one of three groups for six
months of treatment as follows:
|
·
|
Group
A: NOV-002, administered intravenously and intramuscularly, in combination
with cytotoxic chemotherapy (carboplatin with
paclitaxel);
|
|
·
|
Group
B: NOV-002, administered intravenously and subcutaneously, in combination
with cytotoxic chemotherapy; and
|
|
·
|
Group
C: Cytotoxic chemotherapy alone was administered to this control
group.
|
Based on
the study protocol, the intent-to-treat analysis of the best overall objective
tumor response (i.e., complete or partial tumor shrinkage) showed the
following:
|
·
|
Six
out of 13 (46%) patients in Group A demonstrated objective tumor
response;
|
|
·
|
11
out of 16 (69%) patients in Group B demonstrated objective tumor response;
and
|
|
·
|
five
out of 15 (33%) in Group C, the control group, demonstrated objective
tumor response.
|
The
difference in objective tumor response between Group B and Group C (69% versus
33%) was statistically significant (p=0.044).
Further,
NOV-002-treated patients (i.e., Group A and Group B) better tolerated cytotoxic
chemotherapy as evidenced by their ability to receive more cycles of
chemotherapy compared to the control group (Group C). 100% of
patients in Group B and 85% of patients in Group A were able to complete four
cycles of chemotherapy, while only 50% of control group patients in Group C were
able to do so. The differences between treated versus control groups
was statistically significant (p=0.004).
29
In St.
Petersburg, Russia, a multi-center, randomized, open-label study was conducted
during 1996-1998 to evaluate the safety and efficacy of NOV-002 in patients with
advanced non-small cell lung cancer. In this study, patients
receiving NOV-002 in combination with chemotherapy had a significantly increased
one-year survival rate over the control group (63% treated group vs. 17%
control, p<0.01). In addition, ability to conduct daily
activities, quality of life, tolerance to chemotherapy, hematologic parameters
and kidney/liver toxicity markers appeared to improve or normalize in patients
receiving NOV-002 in comparison to those in the control group. As in
the U.S. Phase 1/2 trial, patients receiving NOV-002 were able to receive
significantly more cycles of chemotherapy (p<0.01). Importantly,
no NOV-002-associated adverse effects were observed. In addition, in
an independent study in advanced non-small cell lung cancer study of similar
design in Moscow in 2000, 52% of the patients treated with NOV-002 survived for
at least one year.
NOV-002
for Neoadjuvant Treatment of Breast Cancer
We are
also developing NOV-002 to treat early-stage breast cancer in combination with
chemotherapy. These patients are often treated with chemotherapy to
minimize surgical intervention. A U.S. Phase 2 trial to
evaluate the ability of NOV-002 to enhance the effectiveness of such
chemotherapy while diminishing side-effects commenced in June 2007 at the
Medical University of South Carolina (MUSC) Hollings Cancer
Center. The trial is currently ongoing at the Braman Family Breast
Cancer Institute at the Sylvester Comprehensive Care Center University of Miami
Miller School of Medicine (Sylvester). Alberto Montero, MD, Assistant
Professor of Medicine at Sylvester, is the Principal Investigator.
Breast
cancer remains a serious public health concern throughout the
world. According to the American Cancer Society, approximately
192,000 women in the US were expected to be diagnosed with breast cancer in
2009, and approximately 41,000 were expected to die from the
disease. Neoadjuvant or preoperative systemic chemotherapy is
commonly employed in patients with locally advanced stage III breast cancer and
in some patients with stage II tumors. Administration of neoadjuvant
chemotherapy reduces tumor size, thus enabling breast conservation surgery in
patients who otherwise would require a mastectomy. Furthermore,
several studies have shown that pathologic complete response (pCR) following
neoadjuvant chemotherapy is associated with a significantly higher probability
of long-term survival. However, only a minority of patients with
HER-2 negative breast cancer achieve a pCR with standard
chemotherapy.
The
primary objective of this open-label, single-arm trial is to determine if
preoperative administration of NOV-002 in combination with eight cycles of
chemotherapy (four of doxorubicin and cyclophosphamide followed by four of
docetaxel) results in an appreciably higher pCR rate than expected with this
same chemotherapeutic regimen alone. According to the Simon two-stage
trial design, if four or more pCRs were observed in the first stage of the trial
(19 women), enrollment would continue into the second stage, for a total of 46
women.
As of
December 2008, 19 women have been enrolled, with six pCRs already demonstrated
in the first 15 women (40%) who have completed chemotherapy and undergone
surgery, which is much greater than the less than 20% historical expectation in
HER-2 negative patients. Furthermore, NOV-002 was associated with
decreased hematologic toxicities and with decreased use of growth factors
(Ethropoiesis Stimulating Agents, which are potentially harmful)
relative to historical experience. Detailed results were presented at
the San Antonio Breast Cancer Symposium in December 2008. Having
achieved an interim efficacy target even earlier than expected, the trial has
moved into the second stage. Full enrollment of 46 patients is
expected by the end of 2009, with trial conclusion anticipated in late
2010.
NOV-002
for Chemotherapy (Platinum)-Resistant Ovarian Cancer
According
to the American Cancer Society, approximately 22,000 U.S. women were expected to
be diagnosed with ovarian cancer in 2009 and 15,000 women are expected to die
from it. According to a Rodman and Renshaw report dated December
2006, the pharmaceutical market for treating ovarian cancer was estimated to be
$300 million per year. There is a lack of effective treatment,
particularly in the case of patients who are chemotherapy refractory (those who
do not respond to chemotherapy) or resistant (those who relapse shortly after
receiving chemotherapy).
30
First-line
chemotherapy treatment is the same in ovarian cancer as in non-small cell lung
cancer. Standard first-line treatment for ovarian cancer patients is
carboplatin and paclitaxel chemotherapy in combination. Doxorubicin
and topotecan alternate as second- and third-line chemotherapy
treatments.
Refractory/resistant
ovarian cancer patients have a very poor prognosis because they are faced with
inadequate therapeutic options. According to a Lehman Brothers report
dated September 2002, response rates from second-line treatments, such as
doxorubicin and topotecan, are typically less than 12%. Once a
woman’s ovarian cancer is defined as platinum resistant, the chance of having a
partial or complete response to further platinum therapy is typically less than
10%, according to an article by A. Berkenblit in the June 2005 issue of the
Journal of Reproductive
Medicine.
In
Russia in 1998, twenty ovarian cancer case studies were analyzed. All
of these patients were treated for three cycles with platinum-based chemotherapy
but continued with progressive disease according to qualitative assessments and
Cancer Antigen 125. The patients were then treated with NOV-002 for
three to four weeks, followed by three more cycles of the same platinum-based
chemotherapy (to which they previously failed to respond) in conjunction with
NOV-002. The observed 40% objective tumor response rate across these
case studies is much higher than would ordinarily be expected in patients who
had previously been non-responsive to platinum-based
chemotherapy. Objective response is defined as partial (50% or
greater tumor reduction) or complete response; it does not include stabilization
of the disease or small reductions in tumor size. An additional 40%
of patients in the Russian analysis displayed stable disease (i.e., no tumor
growth).
In a U.S.
Phase 2 chemotherapy-resistant ovarian cancer trial at Massachusetts General
Hospital and Dana-Farber Cancer Institute from July 2006 through May 2008,
NOV-002 (plus carboplatin) slowed progression of the disease in 60% of evaluable
patients (9 out of 15 women). The median progression-free survival
was 15.4 weeks, almost double the historical control of 8 weeks. These results
were presented at the American Society of Clinical Oncology in May
2008. We plan to initiate a second Phase 2 trial in
chemotherapy-resistant ovarian cancer patients in the event we obtain the
additional funding necessary for that purpose. However, there can be no
assurance that such funding will be available.
NOV-205
NOV-205
for Chronic Hepatitis C
NOV-205
is a unique, injectable, small-molecule proprietary formulation of oxidized
glutathione and inosine. We are developing NOV-205 in the U.S. for
the treatment of chronic hepatitis C.
According
to the World Health Organization, chronic hepatitis C affected 170 million
people worldwide in 2003, and up to four million people are newly infected each
year. Chronic infection can progress to cirrhosis and end-stage liver
disease. While there are varying estimates about the size of the
global market for hepatitis C drugs, a September 2006 publication of Nature Reviews Drug Discovery
estimated the global market to be in excess of $3 billion per year. The Centers for Disease
Control and Prevention (CDC), estimated that in 2003, 3.9 million persons in the
U.S. were infected with hepatitis C, and 2.7 million persons in the U.S. had
chronic infection. The CDC further estimated that there are
approximately 30,000 new hepatitis C infections and 8,000-10,000 hepatitis
C-related deaths each year in the U.S.
NOV-205
was approved in Russia by the Ministry of Health in 2001 as monotherapy for the
treatment of hepatitis B and C. The Russian approval of NOV-205 was
supported by a Russian New Drug Application, which included studies in hepatitis
B and C totaling 90 treated patients. An additional 88 patients had
been treated in previous anecdotal studies. After relatively short
treatment periods (one to two months), the drug was shown to eliminate the serum
viral load in hepatitis B patients and to decrease viral load below detection in
40-60% of hepatitis C subjects. Importantly, these reductions were
largely maintained during one to three months of post-treatment
follow-up. In addition, NOV-205 was shown to improve liver function
as evidenced by significant reductions in serum biochemical markers of liver
toxicity. No NOV-205-related adverse events were reported among any
of the 178 patients treated in these studies.
31
The
therapeutic profile of NOV-205 contrasts sharply with those of currently
approved therapies in the U.S., which have limited effectiveness, are expensive
and have severe side effects, particularly in the case of chronic hepatitis
C. For example, pegylated interferon and ribavirin combinations have
limitations of safety and tolerability (40-65% of treated patients experience
fatigue, depression, fever, headaches, muscle pain or
anemia). Furthermore, these drugs are effective in only a fraction of
the patient population and are very expensive. Other new products for
hepatitis C, beyond variations of ribavirin and interferon (e.g., HCV protease
inhibitors), are at early stages of development and could potentially be used in
combination with NOV-205.
On the
basis of the clinical and pre-clinical data package underlying Russian approval
of NOV-205, in combination with U.S. chemistry and manufacturing information, we
filed an Investigational New Drug Application with the FDA for NOV-205 as
monotherapy in chronic hepatitis C in March 2006. The FDA accepted
our Investigational New Drug Application in April 2006, and a U.S. Phase 1b
trial in patients who previously failed treatment with pegylated interferon plus
ribavirin commenced in September 2006 and was completed in December
2007. Based on the favorable safety data obtained from this trial, we
plan to initiate a longer duration proof-of-concept trial in the first
half of 2010, provided that we obtain the additional funding necessary
for that purpose.
Non-clinical
Research Program
Our
non-clinical research program is aimed at gaining a better understanding of the
mechanism(s) of action of our oxidized glutathione-based drug products and
adding to the Russian non-clinical data that will be required for ultimate FDA
filing of our products. This research is being performed via a network of
academic and commercial (i.e., contract research organizations)
laboratories.
We are
engaged in a funded research collaboration with the laboratory of Kenneth Tew,
Ph.D., D.Sc., Chairman of the Department of Cell and Molecular Pharmacology and
Experimental Therapeutics at The Medical University of South
Carolina. Dr. Tew is also chairman of our Scientific Advisory Board
and a stockholder. The general objectives of this research program are to add to
the understanding of NOV-002 and NOV-205 as drug products, particularly with
respect to their molecular and cellular mechanisms of action and to facilitate
the design and execution of clinical studies and the interactions with the FDA
and the scientific community. Funded research collaborations have
been conducted or are underway at other academic/scientific institutions
including Harvard/Massachusetts General Hospital, the Wistar Institute, the
University of Massachusetts Medical Center and the University of Miami to
further elaborate in
vitro and in
vivo mechanisms of drug action that may underlie the clinical therapeutic
profiles of NOV-002 and NOV-205.
Manufacturing
Our
proprietary manufacturing process is well-established, simple, inexpensive and
scalable. We have used U.S. and Canadian contract manufacturing
facilities that are registered with the FDA to support our U.S. development
efforts. We do not plan to build manufacturing capability over the
next several years. Rather, we plan to continue to employ contract
manufacturers.
The
active pharmaceutical ingredient of NOV-002 is manufactured in the U.S. in
compliance with current Good Manufacturing Practices in a single, synthetic step
and then filled, finished and packaged at Hyaluron (Burlington, MA) as a
sterile, filtered, aseptically processed solution for intravenous and
subcutaneous use. NOV-002 clinical trial material (vials and syringes
containing the active pharmaceutical ingredient and solution) has successfully
completed 36-month stability studies.
We are
not currently manufacturing NOV-205. In the past, NOV-205’s active
pharmaceutical ingredient was manufactured in compliance with current Good
Manufacturing Practices in a single, synthetic step at Synthetech, Inc. and then
lyophilized into a powder at Oregon Freeze Dry, Inc. It was then
filled, finished and packaged at Dalton Pharma Services Inc. (Toronto,
Canada).
32
Intellectual
Property
We own
all intellectual property rights worldwide (excluding the Russian Territory)
related to both clinical-stage compounds (i.e., NOV-002 and NOV-205) and other
pre-clinical compounds based on oxidized glutathione. We have six
issued patents in the U.S. We also have two issued patents in Europe
and one in Japan. Overall, we have filed more than 30 patent
applications worldwide.
Novelos
has entered into a collaboration agreement granting Mundipharma exclusive rights
to develop, manufacture and commercialize NOV-002 in Europe (other than the
Russian Territory), Asia (other than the Chinese Territory) and
Australia. NOV-205, our second compound, is in Phase 1b development
for the treatment of chronic hepatitis C in non-responders. Both
compounds have been licensed to Lee’s Pharm for exclusive development,
manufacture and commercialization in the Chinese Territory.
Under
the August 2009 Purchase Agreement, we committed to negotiate exclusively
with Purdue for the license or other acquisition of NOV-002 Rights in the United
States until Purdue receives certain information related to the results of the
Phase 3 clinical trial. In addition, we granted Purdue a right of
first refusal with respect to bona fide offers received from third parties to
obtain NOV-002 Rights in the United States. The right of first
refusal terminates only upon certain business combinations.
We
believe that our breadth of intellectual property will allow us to expand our
pipeline by claiming and commercializing additional compounds that are based on
oxidized glutathione.
Employees
As of
January 18, 2010 we had eight full-time employees. We believe our
relationships with our employees are good.
Regulation
The
manufacturing and marketing of NOV-002 and NOV-205 and our related research and
development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. We anticipate that these regulations will apply separately
to each drug and compound in our drug therapy technology. We believe
that complying with these regulations will involve a considerable level of time,
expense and uncertainty.
In the
United States, drugs are subject to rigorous federal regulation and, to a lesser
extent, state regulation. The Federal Food, Drug and Cosmetic Act and
other federal and state statutes and regulations govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage, recordkeeping,
approval, advertising and promotion of our drugs. Drug development
and approval within this regulatory framework is difficult to predict and will
take a number of years and involve the expenditure of substantial
resources.
The steps
required before a pharmaceutical agent may be marketed in the United States
include:
|
·
|
Pre-clinical
laboratory tests, in
vivo pre-clinical studies, and formulation
studies;
|
|
·
|
The
submission to the FDA of an Investigational New Drug Application for human
clinical testing, which must become effective before human clinical trials
can commence;
|
|
·
|
Adequate
and well controlled human clinical trials to establish the safety and
efficacy of the product;
|
|
·
|
The
submission of a New Drug Application or Biologic Drug License Application
to the FDA; and
|
33
|
·
|
FDA
approval of the New Drug Application or Biologic Drug License Application
prior to any commercial sale or shipment of the
product.
|
In
addition to obtaining FDA approval for each product, each product manufacturing
facility must be registered with and approved by the
FDA. Manufacturing facilities are subject to biennial inspections by
the FDA and must comply with the FDA’s Good Manufacturing Practices for
products, drugs and devices.
Whether
or not FDA approval has been obtained, approval of a product by regulatory
authorities in foreign countries must be obtained prior to the commencement of
commercial sales of the drug in such countries. The requirements
governing the conduct of clinical trials and drug approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general each
country has its own procedures and requirements.
LITIGATION
We are
not a party to any legal proceedings the outcome of which, in the opinion of our
management, would have a material adverse effect on our business, financial
condition, or results of operations.
PROPERTIES
We lease
our executive office in Newton, Massachusetts. Our office consists of
approximately 2,200 square feet and is rented for approximately $5,300 per
month. This lease expires in August 2010. We believe that
our present facilities are adequate to meet our current needs. If new
or additional space is required, we believe that adequate facilities are
available at competitive prices.
MANAGEMENT
Our
current directors and executive officers are:
Name
|
Age
|
Position
|
||
Stephen
A. Hill, B.M. B.Ch., M.A., F.R.C.S.
|
51
|
Chairman
of the Board
|
||
Harry
S. Palmin
|
39
|
President,
Chief Executive Officer and Director
|
||
Elias
B. Nyberg, DVM, BVSc, MACVS, MRCVS, MBA
|
55
|
Vice
President of Regulatory, Quality and Compliance
|
||
Christopher
J. Pazoles, Ph.D.
|
60
|
Vice
President of Research and Development
|
||
Joanne
M. Protano
|
41
|
Vice
President, Chief Financial Officer and Treasurer
|
||
Kristin
C. Schuhwerk
|
39
|
Vice
President of Clinical Development and Operations
|
||
Michael
J. Doyle (1) (2) (3)
|
51
|
Director
|
||
Sim
Fass, Ph.D. (1) (2) (3)
|
67
|
Director
|
||
James
S. Manuso, Ph.D.
|
60
|
Director
|
||
David
B. McWilliams (2) (3)
|
66
|
Director
|
||
Howard
M. Schneider (1) (3)
|
66
|
Director
|
(1) Member
of the audit committee.
(2) Member
of the compensation committee.
(3) Member
of the nominating and corporate governance committee.
Our
executive officers are appointed by, and serve at the discretion of, our board
of directors.
34
Stephen A.
Hill. Dr. Hill was elected our chairman of the board of
directors in September 2007. Dr. Hill has served as the President and Chief
Executive Officer of Solvay Pharmaceuticals, Inc. since April
2008. Prior to joining Solvay, Dr. Hill had served as ArQule's
President and Chief Executive Officer since April 1999. Prior to his
tenure at ArQule, Dr. Hill was the Head of Global Drug Development at F.
Hoffmann-La Roche Ltd. from 1997 to 1999. Dr. Hill joined Roche in 1989 as
Medical Adviser to Roche Products in the United Kingdom. He held several senior
positions at Roche, including Medical Director where he was responsible for
clinical trials of compounds across a broad range of therapeutic areas,
including CNS, HIV, cardiovascular, metabolic and oncology products.
Subsequently, he served as Head of International Drug Regulatory Affairs at
Roche headquarters in Basel, Switzerland, where he led the regulatory
submissions for seven major new chemical entities. Dr. Hill also was a member of
Roche's Portfolio Management, Research, Development and Pharmaceutical Division
Executive Boards. Prior to Roche, Dr. Hill served seven years with the National
Health Service in the United Kingdom in General and Orthopedic Surgery. Dr. Hill
is a Fellow of the Royal College of Surgeons of England and holds his scientific
and medical degrees from St. Catherine's College at Oxford
University.
Harry S.
Palmin. Mr. Palmin has served as our president and a director
since 1998 and our chief executive officer since January 2005. From
1998 to September 2005, he served as our acting chief financial
officer. From 1996 to 1998, he was a vice president at Lehman
Brothers and from 1993 to 1996, he was an associate at Morgan Stanley &
Co. Mr. Palmin earned a B.A. in economics and business and a M.A. in
international economics and finance from the International Business School at
Brandeis University. He has also studied at the London School of
Economics and the Copenhagen Business School.
Elias B.
Nyberg. Dr. Nyberg has served as our vice president of
regulatory, quality and compliance since May 2008. From September
2006 to April 2008, Dr. Nyberg was a regulatory advisor to several companies
including Labopharm and Novartis Phramaceuticals, Inc. From February
2004 to September 2006 he was the Vice President Regulatory Affairs for
CombinatoRx. From April 2001 to January 2004 he served as the Senior
Director International Regulatory Affairs for Biogen. Dr. Nyberg has
also held senior regulatory positions with INC Research/PRA International Inc.,
Astra Arcus AB, Pfizer Pharmaceuticals and Ciba-Geigy. Prior to his
tenure in the biotechnology industry, Dr. Nyberg practiced as a veterinarian for
12 years, specializing in exotic animals. He undertook his primary
veterinary training in the Philippines followed by post-doctorate work in South
Africa and Australia. Dr. Nyberg earned an MBA in England and his specialty
(diplomate) boards in Exotic Animal (Avian) Medicine (MACVS) in Australia. He is
also a member of the Royal College of Veterinary Surgeons (MRCVS) in
London.
Christopher J.
Pazoles. Dr. Pazoles has served as our vice president of
research and development since July 2005. From May 2004 to June 2005,
he held a senior research and development position at the Abbott Bioresearch
Center, a division of Abbott Laboratories. From October 2002 to
January 2004, he served as chief operating officer and head of research and
development at ALS Therapy Development Foundation. From 1994 to
October 2002, Dr. Pazoles served as vice president of research for Phytera,
Inc. From 1981 to 1994, he served as a researcher and senior manager
with Pfizer. Dr. Pazoles holds a Ph.D. in microbiology from the
University of Notre Dame.
Joanne M.
Protano. Ms. Protano was appointed our vice president,
chief financial and accounting officer, and treasurer in December
2007. She previously held the position of Senior Director of Finance
and Controller of the Company from June 2006 to December 2007. From
1996 to 2006, she held various management and senior management positions with
Ascential Software, Inc. and predecessor companies including Assistant
Controller, Reporting for Ascential Software, Vice President and Chief Financial
Officer for the Ascential Software Division of Informix Software, Inc. and
Corporate Controller of Ardent Software, Inc. Prior to her tenure in
the technology industry, from 1990 to 1996 she was employed by Deloitte and
Touche LLP as an audit manager, serving technology and healthcare
clients. Ms. Protano received a B.S. in business administration from
Bryant College.
Kristin C. Schuhwerk. Ms.
Schuhwerk was appointed our vice president of clinical development and
operations in December 2007. She previously served as our
Director/Senior Director of Operations from July 2005 to December
2007. Prior to her employment at Novelos, she worked in the
biopharmaceutical industry managing and overseeing business operations for
multiple global Phase 2 and 3 clinical studies. From 2002 to 2005 she
held the positions of Senior Project Manager and Director of Planning and
Business Operations in Clinical Development at Antigenics, Inc., a cancer
biotechnology company. From 1993 to 2002, she held research, project management
and management positions at Boston University Medical Center, Parexel
International, AstraZeneca and Brigham & Women’s Hospital. Ms.
Schuhwerk earned a B.S. degree in Chemistry from the University of New
Hampshire.
35
Michael J.
Doyle. Mr. Doyle has served as one of our directors since
October 2005. Since October 2007 he has served as the chief executive
officer of Medsphere Systems Corporation. From April 2006 to June
2007, he served as chief executive officer of Advantedge Healthcare
Solutions. From January 2005 to March 2006, he served as chief
executive officer of Windward Advisors. From March 2000 to December
2004, Mr. Doyle served as chairman and chief executive officer of
Salesnet. From 1989 to 1997, he served as chairman and chief
executive officer of Standish Care/Carematrix, a company he
founded. He received a B.S. in biology from Tufts University and a
M.B.A. with a concentration in finance and health care from the University of
Chicago.
Sim Fass. Dr. Fass
has served as one of our directors since February 2005. Dr. Fass, now
retired, served as chief executive officer and chairman of Savient
Pharmaceuticals from 1997 to 2004, its president and chief executive officer
from 1984 to 1997, and its chief operating officer from 1983 to
1984. From 1980 to 1983, Dr. Fass served as vice president and
general manager of Wampole Laboratories. From 1969 to 1980, he held a
number of marketing, sales and senior management positions at Pfizer, Inc in
both pharmaceuticals and diagnostics. He received a B.S. in biology
and chemistry from Yeshiva College and a doctoral degree in developmental
biology/biochemistry from the Massachusetts Institute of
Technology.
James S.
Manuso. Dr. Manuso was elected as one of our directors in
August 2007. Since January 2005, Dr. Manuso has served as Chairman,
President and Chief Executive Officer of SuperGen, Inc. and has served as a
director of SuperGen since February 2001. Dr. Manuso is co-founder
and former president and chief executive officer of Galenica Pharmaceuticals,
Inc. Dr. Manuso co-founded and was general partner of PrimeTech
Partners, a biotechnology venture management partnership, from 1998 to 2002, and
Managing General Partner of The Channel Group LLC, an international life
sciences corporate advisory firm. He was also president of Manuso,
Alexander & Associates, Inc., management consultants and financial advisors
to pharmaceutical and biotechnology companies. Dr. Manuso was a vice
president and Director of Health Care Planning and Development for The Equitable
Companies (now Group Axa), where he also served as Acting Medical
Director. He currently serves on the board of privately-held KineMed,
Inc. and Merrion Pharmaceuticals Ltd. (Dublin, Ireland). Dr. Manuso
earned a B.A. in economics and chemistry from New York University, a Ph.D. in
experimental psychophysiology from the Graduate Faculty of The New School
University, a certificate in health systems management from Harvard Business
School, and an executive M.B.A. from Columbia Business School.
David B.
McWilliams. Mr. McWilliams has served as one of our directors
since March 2004. From February 2004 to December 2004, Mr. McWilliams
performed chief executive officer services for us. Mr. McWilliams is
currently retired. From August 2004 to July 2008, Mr. McWilliams
served as chief executive officer of Opexa Therapeutics, Inc. (formerly
PharmaFrontiers Corp.). From 1992 to March 2002, he served as
president, chief executive officer and a director of Encysive Pharmaceuticals
(formerly Texas Biotech). From 1989 to 1992, Mr. McWilliams served as
president, chief executive officer and director of Zonagen. From 1984
to 1988, he served as president and chief executive officer of Kallestad
Diagnostics. From 1980 to 1984, he served as president of Harleco
Diagnostics Division. From 1972 to 1980, he was an executive at
Abbott Laboratories, rising to general manager for South Africa. From
1969 to 1972, he was a management consultant at McKinsey &
Co. Mr. McWilliams is also a director of ApoCell Biosciences, Houston
Technology Center and Opexa Therapeutics. Mr. McWilliams received a
M.B.A. in finance from the University of Chicago and a B.A. in chemistry from
Washington and Jefferson College.
Howard M.
Schneider. Mr. Schneider has served as one of our directors
since February 2005. Mr. Schneider is currently
retired. From January to December 2003, he served as chief executive
officer of Metrosoft, Inc., and had been an advisor to such company from July to
December 2002. From May 2000 to May 2001, he served as president of
Wofex Brokerage, Inc. and from 1965 to 1999, he served as an executive at
Bankers Trust Company holding a variety of positions in the commercial banking
and investment banking businesses. Mr. Schneider received a B.A. in
economics from Harvard College and a M.B.A. from New York
University.
36
Compensation
of Directors and Executive Officers
Executive
Officer Compensation
Summary
Compensation: The following table sets forth certain
information about the compensation we paid or accrued with respect to our
principal executive officer and our two most highly compensated executive
officers (other than our chief executive officer) who served as executive
officers during the year ended December 31, 2008 and whose annual
compensation exceeded $100,000 for that year.
Other
annual compensation in the form of perquisites and other personal benefits has
been omitted as the aggregate amount of those perquisites and other personal
benefits was less than $10,000 for each person listed.
Summary
Compensation Table
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($) (3)
|
Option
Awards ($) (4)
|
All other
compensation
($)
|
Total ($)
|
||||||||||||||||
Harry
S. Palmin (1)
|
2008
|
$ | 270,000 | $ | 40,500 | $ | 110,560 | $ | 0 | $ | 421,060 | |||||||||||
President,
Chief Executive Officer
|
2007
|
245,000 | 75,000 | 59,660 | 0 | 379,660 | ||||||||||||||||
Christopher
J. Pazoles (1)
|
2008
|
$ | 235,000 | $ | 35,250 | $ | 55,280 | $ | 0 | $ | 325,530 | |||||||||||
Vice
President of Research and Development
|
2007
|
216,720 | 60,000 | 37,288 | 0 | 314,008 | ||||||||||||||||
Kristin
C. Schuhwerk (1) (2)
|
2008
|
$ | 200,000 | $ | 30,000 | $ | 55,280 | $ | 0 | $ | 285,280 | |||||||||||
Vice
President of Clinical Development and Operations
|
2007
|
169,904 | 50,000 | 37,288 | 0 | 257,192 |
(1)
|
There
has been no increase to executive base salaries for
2009.
|
(2)
|
Ms.
Schuhwerk was appointed as an officer in December 2007. The compensation
listed for 2007 was paid to her in her capacity as senior director of
operations.
|
(3)
|
Bonus
amounts for 2008 were paid in 2009. Bonus amounts for 2007 were
paid in 2008.
|
(4)
|
The
fair value of each stock award was estimated on the grant date using the
Black-Scholes option-pricing model.
|
Employment
Agreements
On
January 31, 2006, we entered into an employment agreement with Harry Palmin
effective January 1, 2006, whereby he agreed to serve as our president and chief
executive officer for an initial term of two years at an annual salary of
$225,000. The agreement is automatically renewed for successive one-year terms
unless notice of termination is provided by either party at least 90 days prior
to the end of such term. The agreement was renewed for an additional
one-year term on January 1, 2009 in accordance with its terms. On
December 17, 2007, the Board of Directors approved an increase in Mr. Palmin’s
annual salary to $270,000 effective January 1, 2008. He is eligible to receive
an annual cash bonus at the discretion of the compensation committee and he is
entitled to participate in our employee fringe benefit plans or programs
generally available to our senior executives. The agreement provides that in the
event that we terminate Mr. Palmin without cause or he resigns for good reason
(as defined below), we will (i) pay Mr. Palmin his pro rata share of the average
of his annual bonus paid during the two fiscal years preceding his termination;
(ii) pay Mr. Palmin his base salary for 11 months after the date of termination;
(iii) continue to provide him benefits for 11 months after the date of
termination; and (iv) fifty percent of his unvested stock options will vest. The
agreement also contains a non-compete provision, which prohibits Mr. Palmin from
competing with us for one year after termination of his employment with
us.
37
“Cause”
means (i) gross neglect of duties for which employed; (ii) committing fraud,
misappropriation or embezzlement in the performance of duties as our employee;
(iii) conviction or guilty or nolo plea of a felony or misdemeanor involving
moral turpitude; or (iv) willfully engaging in conduct materially injurious to
us or violating a covenant contained in the employment agreement.
“Good
Reason” means (i) the failure of our board of directors to elect Mr. Palmin to
the offices of president and chief executive officer; (ii) the failure by our
stockholders to continue to elect Mr. Palmin to our board of directors; (iii)
our failure to pay Mr. Palmin the compensation provided for in the employment
agreement, except for across-the-board cuts applicable to all of our officers on
an equal percentage basis, provided that such reduction is approved by our board
of directors; (iv) relocation of Mr. Palmin’s principal place of employment to a
location beyond 50 miles of Newton, Massachusetts; (v) a reduction of base
salary or material reduction in other benefits or any material change by us to
Mr. Palmin’s function, duties, authority, or responsibilities, which change
would cause Mr. Palmin’s position with us to become one of lesser
responsibility, importance, or scope; and (vi) our material breach of any of the
other provisions of the employment agreement.
On July
15, 2005, we entered into an employment agreement with Christopher J. Pazoles
whereby he agreed to serve as our vice president of research and development for
an initial term of two years. The agreement is automatically renewed
for successive one-year terms unless notice of termination is provided by either
party at least 60 days prior to the end of such term. The agreement was renewed
for an additional one-year term on July 15, 2008 in accordance with its
terms. The agreement provides for minimum salary and bonus amounts
during the first two years of his employment. These minimum amounts
have been satisfied. Dr. Pazoles’ agreement provides that he is
entitled to participate in our employee fringe benefit plans or programs
generally available to our senior executives. The agreement further
provides that in the event that we terminate Dr. Pazoles without cause or he
resigns for good reason (as defined below), we will (i) pay Dr. Pazoles his base
salary through the remainder of the term of his employment agreement in monthly
installments; (ii) continue to provide him benefits for 12 months after the date
of termination; and (iii) pay, on a prorated basis, any minimum bonus or other
payments earned.
Dr.
Pazoles also entered into a nondisclosure and development agreement with us,
which prohibits him from competing with us and soliciting our employees or
customers during the term of his employment and for two years
thereafter. If we terminate his employment without cause, this
prohibition will only extend for six months after his termination.
“Cause”
means Dr. Pazoles (i) has willfully failed, neglected, or refused to perform his
duties under the employment agreement; (ii) has been convicted of or pled guilty
or no contest to a crime involving a felony; or (iii) has committed any act of
dishonesty resulting in material harm to us.
“Good
Reason” means that Dr. Pazoles has resigned due to our failure to meet any of
our material obligations to him under the employment agreement.
Phase
3 Clinical Trial Bonus Plan
On
December 8, 2009, our board of directors approved a special bonus plan for all
employees of the Company, including our named executive officers. The
bonus plan provides for the payment of contingent cash bonuses in three equal
installments in aggregate amounts ranging from 80% to 150% of annual 2009
salaries for each employee. All payments under the bonus plan are
conditioned upon the achievement of favorable results for our Phase 3 clinical
trial of NOV-002 in non-small cell lung cancer (the “Phase 3
Trial”).
The
first installment becomes payable immediately upon the satisfaction of both of
the following conditions:
|
·
|
the
announcement results for the Phase 3 Trial showing statistically
significant improvement in median overall survival;
and
|
|
·
|
the
receipt by the Company of at least $20 million in proceeds from either the
sale of its capital stock or a partnering transaction, or upon a change in
control of the Company.
|
The
second and third installments become payable on the first and second
anniversaries of the announcement of the results of the Phase 3 Trial following
the satisfaction of either of the following conditions:
|
·
|
the
results of the Phase 3 Trial show 25% or greater improvement in median
overall survival of patients receiving NOV-002 and chemotherapy as
compared to patients receiving chemotherapy alone;
or
|
|
·
|
the
results of the Phase 3 Trial show statistically significant improvement in
median overall survival and the United States Food and Drug Administration
approves NOV-002 for use in the treatment of advanced non-small cell lung
cancer in combination with first-line chemotherapy (paclitaxel and
carboplatin) without requiring an additional efficacy
trial.
|
The
payment of the second and third installments is subject to acceleration in the
event of a change in control of the Company, provided that the above conditions
have been satisfied.
All of
the Company’s employees are eligible for participation in the bonus plan,
including the following named executive officers, who are eligible to receive
the following amounts if the conditions to the payments of the bonuses provided
under the bonus plan are satisfied:
Installment 1
|
Installment 2
|
Installment 3
|
||||||||||
Harry
S. Palmin
|
$ | 125,000 | $ | 125,000 | $ | 125,000 | ||||||
Christopher
J. Pazoles
|
86,167 | 86,167 | 86,167 | |||||||||
Kristin
C. Schuhwerk
|
100,000 | 100,000 | 100,000 |
38
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth certain information regarding stock options held as
of December 31, 2008 by the executive officers named in the summary compensation
table.
Individual Grants
|
||||||||||||||||
Name
|
Year
of Grant
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Exercise or
base price
($/share)
|
Expiration
date
|
|||||||||||
Harry
S. Palmin
|
2008
|
(1)
|
— | 400,000 | $ | 0.43 |
12/15/2018
|
|||||||||
2007
|
(1)
|
66,666 | 133,334 | 0.45 |
12/17/2017
|
|||||||||||
2006
|
(1)
|
100,000 | 50,000 | 0.91 |
12/11/2016
|
|||||||||||
2005
|
(2)
|
250,000 | — | 0.01 |
1/31/2015
|
|||||||||||
2005
|
(2)
|
150,000 | — | 0.01 |
3/31/2015
|
|||||||||||
2004
|
(3)
|
330,000 | — | 0.01 |
4/1/2014
|
|||||||||||
2003
|
(4)
|
7,130 | — | 0.70 |
8/1/2013
|
|||||||||||
Christopher
J. Pazoles
|
2008
|
(1)
|
— | 200,000 | $ | 0.43 |
12/15/2018
|
|||||||||
2007
|
(1)
|
41,666 | 83,334 | 0.45 |
12/17/2017
|
|||||||||||
2006
|
(1)
|
66,666 | 33,334 | 0.91 |
12/11/2016
|
|||||||||||
2005
|
(5)
|
200,000 | — | 0.01 |
4/8/2015
|
|||||||||||
2004
|
(6)
|
16,667 | — | 0.01 |
4/1/2014
|
|||||||||||
Kristin
C. Schuhwerk
|
2008
|
(1)
|
— | 200,000 | $ | 0.43 |
12/15/2018
|
|||||||||
2007
|
(1)
|
41,666 | 83,334 | 0.45 |
12/17/2017
|
|||||||||||
2006
|
(1)
|
50,000 | 25,000 | 0.91 |
12/11/2016
|
|||||||||||
2005
|
(7)
|
100,000 | — | 2.20 |
7/1/2015
|
(1)
|
These
shares vest annually in increments of one-third over three years from the
date of grant. The exercise price equals the closing price on
the date of grant.
|
(2)
|
These
shares initially vested over a two-year period. Pursuant to
their terms, the shares fully vested upon the completion of a non-bridge
loan financing, which occurred in the second quarter of
2005. The exercise price equals the fair market value of our
common stock on the date of grant as determined by our board of
directors.
|
(3)
|
These
shares initially vested one-third upon grant and one third annually over
the following two years. Pursuant to their terms, one additional year of
vesting occurred upon the completion of a non-bridge loan financing, which
occurred in the second quarter of 2005. The exercise price
equals the fair market value of our common stock on the date of grant as
determined by our board of
directors.
|
(4)
|
These
shares vest annually in increments of one-third over three years from the
date of grant. The exercise price equals the fair market value of our
common stock on the date of grant as determined by our board of
directors.
|
(5)
|
These
shares vested in increments of one-fourth every six months over two years
from the date of grant. The exercise price equals the fair market value of
our common stock on the date of grant as determined by our board of
directors.
|
(6)
|
These
shares represent the fully vested portion of an option grant made to Mr.
Pazoles in consideration of consulting services delivered during
2004. Pursuant to their terms, the shares vested at the
completion of the consulting engagement and expire ten years from the date
of grant.
|
(7)
|
These
shares vest in increments of one-fourth every six months over two years
from the date of grant. The exercise price equals the closing price on the
date of grant.
|
Options
granted pursuant to the 2006 Stock Incentive Plan will become fully vested upon
a termination event within one year following a change in control, as
defined. A termination event is defined as either termination of
employment other than for cause or constructive termination resulting from a
significant reduction in either the nature or scope of duties and
responsibilities, a reduction in compensation or a required
relocation.
Director
Compensation
Summary
Compensation: The following table sets forth certain
information about the compensation we paid or accrued with respect to our
directors who served during the year ended December 31, 2008.
39
Name and Principal Position
|
Year
|
Director
Fees
($) (3)
|
Option
Awards
($) (4)
|
All other
compensation
($)
|
Total ($)
|
|||||||||||||
Stephen
A. Hill, Chairman (1)
|
2008
|
$ | 38,000 | $ | 37,924 | $ | — | $ | 75,924 | |||||||||
Michael
J. Doyle, Director (1)
|
2008
|
30,250 | 37,924 | — | 68,174 | |||||||||||||
Sim
Fass, Director (1)
|
2008
|
30,250 | 37,924 | — | 68,174 | |||||||||||||
James
S. Manuso, Director (1)
|
2008
|
23,000 | 37,924 | 60,924 | ||||||||||||||
David
B. McWilliams, Director (1)
|
2008
|
26,750 | 37,924 | — | 64,674 | |||||||||||||
Simyon
Palmin, Director and director of Russian relations (2)
|
2008
|
— | — | 88,133 | 88,133 | |||||||||||||
Howard
M. Schneider, Director (1)
|
2008
|
36,750 | 37,924 | — | 74,674 |
(1)
|
As
of December 31, 2008, outstanding options to purchase common stock held by
directors were as follows: Dr. Hill 270,000; Mr. Doyle 270,000;
Dr. Fass 270,000; Dr. Manuso 220,000; Mr. McWilliams 322,778; Mr.
Schneider 170,000.
|
(2)
|
Simyon
Palmin, a founder of Novelos and the father of Harry Palmin, resigned from
our board of directors on August 12, 2008. He remained an employee until
August 31, 2008 and provided consulting services to us for the remainder
of the year. Other compensation for Mr. Palmin represents salary and bonus
he received in his capacity as director of Russian relations and
consulting fees paid to him for the months of September through
December. As of December 31, 2008, Mr. Palmin held 300,000
options to purchase common stock. In addition, The Liberty
Irrevocable Trust 2008, a trust for which his wife Alla is sole trustee,
held 170,000 options to purchase common stock. The total of
470,000 options had been granted to Mr. Palmin during 2004 and 2005 in his
capacity as chairman and chief executive
officer.
|
(3)
|
Director
fees include all fees earned for director services including quarterly
fees, meeting fees and committee chairman
fees.
|
(4)
|
The
fair value of each stock award was estimated on the grant date using the
Black-Scholes option-pricing model. See Note 6 to the financial
statements for a description of the assumptions used in estimating the
fair value of stock options.
|
During
2008, we paid our non-employee directors a cash fee of $5,000 per
quarter. The non-employee directors also received a fee of $1,500 for
any board or committee meeting attended and $750 for each telephonic board or
committee meeting in which the director participated. We also paid
our chairman an additional annual fee in the amount of $15,000, each
non-employee director who serves as the chair of the audit committee an
additional annual fee of $10,000 and each non-employee director who serves as
the chairman of the compensation and nominating and corporate governance
committees an additional annual fee of $5,000. We reimbursed
directors for reasonable out-of-pocket expenses incurred in attending board and
committee meetings and undertaking certain matters on our
behalf. Directors who are our employees do not receive separate fees
for their services as directors. There has been no change to cash
fees payable to non-employee directors for 2009.
During
2008, each non-employee director received an annual stock option grant of 40,000
shares of our common stock at the closing price of our common stock on the first
trading day of the fiscal year. On December 15, 2008, options to
purchase 80,000 shares of our common stock were granted for 2009 to each of our
non-employee directors at the closing price of our common stock on that day.
Both of these option grants vest on a quarterly basis over a two-year
period.
40
Equity
compensation plans
The
following table provides information as of December 31, 2008 regarding shares
authorized for issuance under our equity compensation plans, including
individual compensation arrangements.
We have
two equity compensation plans approved by our stockholders: the 2000
Stock Option and Incentive Plan and the 2006 Stock Incentive Plan. We
have also issued options to our directors and consultants that were not approved
by our stockholders. These options are exercisable within a ten-year
period from the date of the grant and vest at various intervals with all options
being fully vested within three years of the date of grant. The
option price per share is not less than the fair market value of our common
stock on the date of grant.
Equity
compensation plan information
Plan category
|
Number of shares to
be issued upon
exercise of outstanding
options, warrants and
rights (#)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
($)
|
Number of shares
remaining available for
future issuance under
equity compensation plans
(excluding shares reflected
in column (a)) (#)
|
||||||||||
(a)
|
(b)
|
(c)
|
|||||||||||
Equity
compensation plans approved by stockholders
|
4,826,047 | $ | 0.61 | 230,000 | |||||||||
Equity
compensation plans not approved by stockholders
|
2,453,778 | $ | 0.57 | 0 | |||||||||
Total
|
7,279,825 | $ | 0.60 | 230,000 |
41
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
At the
close of business on January 18, 2010, there were issued and outstanding
71,391,957 shares of our common stock. The following table provides information
regarding beneficial ownership of our common stock as of January 18, 2010:
|
·
|
Each
person known by us to be the beneficial owner of more than five percent of
our common stock;
|
|
·
|
Each
of our directors;
|
|
·
|
Each
executive officer named in the summary compensation table;
and
|
|
·
|
All
of our current directors and executive officers as a
group.
|
The
address of each executive officer and director is c/o Novelos Therapeutics,
Inc., One Gateway Center, Suite 504, Newton, Massachusetts 02458. The
persons named in this table have sole voting and investment power with respect
to the shares listed, except as otherwise indicated. The inclusion of
shares listed as beneficially owned does not constitute an admission of
beneficial ownership. Shares included in the “Right to Acquire”
column consist of shares that may be purchased through the exercise of options
that vest within 60 days of January 18, 2010.
Shares
Beneficially Owned (3)
|
||||||||||||||||
Name
and Address of Beneficial Owner
|
Outstanding
|
Right to Acquire
|
Total
|
Percentage
|
||||||||||||
Purdue
Pharma, L.P. (1)
One
Stamford Forum
201
Tresser Blvd.
Stamford,
CT 06901-3431
|
13,636,364 | 0 | 13,636,364 | 19.1 | ||||||||||||
CRE
Fiduciary Services, Inc. as Trustee of the CRE Trust
2120
Carey Avenue
Cheyenne, WY 82001
|
4,538,884 | 0 | 4,538,884 | 6.4 | ||||||||||||
Harry
S. Palmin (2)
|
641,118 | 1,174,629 | 1,815,747 | 2.5 | ||||||||||||
Christopher
J. Pazoles
|
0 | 483,332 | 483,332 | * | ||||||||||||
Kristin
C. Schuhwerk
|
0 | 341,665 | 341,665 | * | ||||||||||||
Stephen
A. Hill
|
0 | 230,000 | 230,000 | * | ||||||||||||
Michael
J. Doyle
|
0 | 230,000 | 230,000 | * | ||||||||||||
Sim
Fass
|
0 | 230,000 | 230,000 | * | ||||||||||||
James
S. Manuso
|
0 | 180,000 | 180,000 | * | ||||||||||||
David
B. McWilliams
|
0 | 282,778 | 282,778 | * | ||||||||||||
Howard
M. Schneider
|
100,000 | 130,000 | 230,000 | * | ||||||||||||
All
directors and officers as a group (11 persons)
|
741,118 | 3,678,234 | 4,419,352 | 5.9 |
*
|
Less
than one percent.
|
|
(1) Following
the financing transactions completed on August 25, 2009 and November 10,
2009 Purdue transferred its shares of common stock and
warrants to purchase common stock of Novelos to Beacon Company (c/o
Whitely Chambers, Don Street, St. Helier, Jersey JE49WG, Channel Islands)
and Rosebay Medical Company L.P. (c/o Northbay Associates, 14000 Quail
Springs Parkway #2200, Oklahoma City, OK 73134), which are
independent associated companies of Purdue. The “Right to
Acquire” column excludes shares issuable on conversion of Series E
preferred stock and upon exercise of warrants issued in February 2009 as
described in the table below.
|
42
|
(2) Shares
owned by H. Palmin include 94,000 shares owned by his wife, Deanna
Palmin.
|
|
(3) The
terms of our Series E preferred stock and common stock purchase warrants
issued to the holders of Series E preferred stock provide that the number
of shares of common stock to be obtained by each of the holders of Series
E preferred stock and common stock purchase warrants, upon conversion of
the Series E preferred stock or exercise of the common stock purchase
warrants, cannot exceed the number of shares that, when combined with all
other shares of our common stock and securities owned by each of them,
would result in any one of them owning more than 4.99% or 9.99%, as
applicable in the certificate of designations and warrant agreement, of
our outstanding common stock, provided, however that this limitation may
be revoked by the stockholder upon 61 days, prior notice to us. For this
reason, holders of our Series E preferred stock who might otherwise have
the right to acquire 5% or more of our common stock have been omitted from
this table. Such limitations do not apply in the event of automatic
conversion of Series E preferred stock. Similar blocking
provisions apply to outstanding shares of our Series C preferred stock and
common stock purchase warrants issued to the holders of Series C preferred
stock and therefore holders of our Series C preferred stock who might
otherwise have the right to acquire 5% or more of our common stock have
also been omitted from this
table.
|
Pro
Forma Holdings Upon Automatic
Conversion
of Series E Preferred Stock
The
following table illustrates the pro forma beneficial ownership of our common
stock that would result in the event of an automatic conversion of all of the
outstanding shares of our Series E preferred stock into common
stock. All outstanding shares of Series E preferred stock
automatically convert in the event the volume weighted average price of our
common stock, calculated in accordance with the terms of the Series E preferred
stock, exceeds $2.00 for 20 consecutive trading days, provided there is an
effective registration statement covering the resale of the shares of common
stock so issuable. At the current conversion price of $0.65, the
automatic conversion of all shares of Series E preferred stock outstanding as of
January 18, 2010, excluding any accumulated dividends, would result in the
issuance of 41,443,519 shares of common stock. In the table below,
share holdings have been presented in total for groups of associated funds or
companies. Such presentation is not intended to represent that such
funds or companies are under common control.
Name and Address of Beneficial Owner
|
Outstanding
Shares of
Common Stock
|
Shares of common
stock issuable upon
automatic
conversion of Series
E preferred stock
|
Total pro
forma
ownership
(1)
|
Pro forma
ownership
percentage
(2)
|
||||||||||||
Xmark
Funds (3)
|
||||||||||||||||
90
Grove Street, Suite 201
|
||||||||||||||||
Ridgefield,
CT 06877
|
0 | 5,279,076 | 5,279,076 | 4.7 | % | |||||||||||
OrbiMed
affiliated funds (4)
|
||||||||||||||||
767
Third Avenue, 30th
Floor
|
||||||||||||||||
New
York, NY 10017
|
0 | 6,475,193 | 6,475,193 | 5.7 | % | |||||||||||
Knoll
affiliated funds (5)
|
||||||||||||||||
666
Fifth Avenue, Suite 3702
|
||||||||||||||||
New
York, NY 10103
|
1,399,300 | 9,247,776 | 10,647,076 | 9.4 | % |
43
Name and Address of Beneficial Owner
|
Outstanding
Shares of
Common Stock
|
Shares of common
stock issuable upon
automatic
conversion of Series
E preferred stock
|
Total pro
forma
ownership
(1)
|
Pro forma
ownership
percentage
(2)
|
||||||||||||
Hunt
Bioventures
|
||||||||||||||||
1900
N. Akard Street
|
||||||||||||||||
Dallas,
TX 75201
|
0 | 5,056,860 | 5,056,860 | 4.5 | % | |||||||||||
Purdue
Pharma, L.P. (6)
|
||||||||||||||||
One
Stamford Forum
|
||||||||||||||||
201
Tresser Blvd.
|
||||||||||||||||
Stamford,
CT 06901-3431
|
13,636,364 | 15,384,614 | 29,020,978 | 25.7 | % |
(1)
|
Pro
forma ownership does not include 25,868,880 shares of common stock
issuable upon exercise of outstanding warrants, due to the effect of the
blocker provisions described in Note 3 of the preceding
table. Pro forma ownership also does not include accumulated
undeclared dividends totaling approximately $2,193,000 at December 31,
2009, that may be converted into approximately 3,374,000 shares of common
stock in connection with the conversion of the associated shares of Series
E preferred stock.
|
(2)
|
Based
on 112,835,476 shares of common stock outstanding, which reflects the
number of shares of common stock outstanding as of January 18, 2010, plus
the total number of shares issuable upon conversion of all of the
outstanding shares of Series E preferred stock.
|
(3)
|
Includes
Xmark Opportunity Partners, LLC, Xmark Opportunity Fund, Ltd., Xmark
Opportunity Fund, L.P., and Xmark JV Investment Partners,
LLC.
|
(4)
|
Includes
OrbiMed Advisors LLC, Caduceus Capital Master Fund Limited, Caduceus
Capital II, LP, UBS Eucalyptus Fund, L.L.C., PW Eucalyptus Fund, Ltd., and
Summer Street Life Sciences Investors
LLC.
|
(5)
|
Includes
Knoll Capital, Knoll Special Opportunities Fund II Master Fund, Ltd., and
Europa International, Inc.
|
(6)
|
Following
the financing transactions completed on February 11, 2009, August 25, 2009
and November 10, 2009, Purdue transferred its shares of Series E preferred
stock, shares of common stock and warrants to purchase common stock of
Novelos to Beacon Company and Rosebay Medical Company L.P., which are
independent associated companies of Purdue.
|
44
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We are
obligated to ZAO BAM, a Russian company engaged in the pharmaceutical business,
under a royalty and technology transfer agreement. Mark Balazovsky, a director
until November 2006, is the majority shareholder of ZAO BAM. Pursuant to the
royalty and technology transfer agreement between Novelos and ZAO BAM, we are
required to make royalty payments of 1.2% of net sales of oxidized
glutathione-based products. We are also required to pay ZAO BAM $2 million for
each new oxidized glutathione-based drug within eighteen months following FDA
approval of such drug.
If a
royalty is not being paid to ZAO BAM on net sales of oxidized glutathione
products, then we are required to pay ZAO BAM 3% of all license
revenues. If license revenues exceed our cumulative expenditures
including, but not limited to, preclinical and clinical studies, testing, FDA
and other regulatory agency submission and approval costs, general and
administrative costs, and patent expenses, then the Company would be required to
pay ZAO BAM an additional 9% of the amount by which license revenues exceed the
Company’s cumulative expenditures. During 2008, we paid ZAO BAM
$15,000, which was 3% of license payments received under the collaboration
agreement with Lee’s Pharm, described in Note 5 to the financial
statements.
As a
result of the assignment to Novelos of the exclusive worldwide intellectual
property and marketing rights of oxidized glutathione (excluding the Russian
Territory), Novelos is obligated to the Oxford Group, Ltd. for future
royalties. Simyon Palmin, a founder of Novelos, a director until
August 15, 2008 and the father of the Company’s president and chief executive
officer, is president of Oxford Group, Ltd. Mr. Palmin was also an
employee of the Company and is now a consultant to the
Company. Pursuant to the agreement, as revised May 26, 2005, Novelos
is required to pay Oxford Group, Ltd. a royalty in the amount of 0.8% of the
Company’s net sales of oxidized glutathione-based products.
Director
Independence
Each
member of the Audit Committee, the Compensation Committee and the Nominating and
Corporate Governance Committee meets the independence requirements of the NASDAQ
Stock Market for membership on the committees on which he serves. The board of
directors considered the information included in transactions with related
parties as outlined above along with other information the board considered
relevant, when considering the independence of each director. Harry S. Palmin is
our only non- independent director.
PRIVATE
PLACEMENTS OF OUR SECURITIES WITH THE SELLING STOCKHOLDERS
Sales
of Convertible Preferred Stock and Warrants
Securities
Purchase Agreement
On May 2,
2007, pursuant to a securities purchase agreement dated April 12, 2007, as
amended on May 2, 2007, we sold 300 shares of a new series of preferred stock,
designated “Series B Convertible Preferred Stock”, with a stated value of
$50,000 per share (the “Series B preferred stock”) and issued warrants to
purchase 7,500,000 shares of common stock at $1.25 per share to the selling
stockholders for an aggregate purchase price of $15,000,000 (the “Series B
Financing”). The shares of Series B preferred stock issued to the investors were
initially convertible into shares of common stock at $1.00 per share at any time
after issuance, at the option of the holder. If all the shares of Series B
preferred stock were converted following closing, a total of 15,000,000 shares
of common stock would have been issued. The
closing price of our common stock on April 11, 2007, the last trading day before
the execution of the securities purchase agreement, was $1.33
On April
11, 2008, pursuant to a securities purchase agreement dated March 26, 2008, as
amended on April 9, 2008, we sold 113.5 shares of our “Series D Convertible
Preferred Stock”, with a stated value of $50,000 per share (the
“Series D preferred stock”), and issued warrants to purchase up to 4,365,381
shares of common stock (the “Series D Financing”) to the selling stockholders.
The
shares of Series D preferred stock were initially convertible into shares of
common stock at $0.65 per share after issuance at the option of the
holder. If all of these shares of Series D preferred stock were
converted following the closing, a total of 8,730,755 shares of common stock
would have been issued. The
closing price of our common stock on March 25, 2008, the last trading day before
the execution of the securities purchase agreement, was $0.57
45
Upon the
closing of the Series D Financing, the holders of our Series B preferred stock
exchanged all 300 shares of their Series B preferred stock for 300 shares of
Series D preferred stock. Following the exchange, no shares of Series B
preferred stock remained outstanding and a certificate of elimination of the
Series B preferred stock was subsequently filed in Delaware. The rights and
preferences of the Series D preferred stock were substantially the same as the
Series B preferred stock, but the conversion price of the Series D preferred
stock was $0.65. As a result of the reduced conversion price, Series B preferred
stock that was convertible into 15,000,000 shares of common stock was exchanged
for shares of Series D preferred stock convertible into 23,076,900 shares of
common stock, reflecting a conversion price of $0.65 per share. If all
outstanding shares of Series D preferred stock were converted following the
closing, a total of 31,807,655 shares of common stock would have been issued.
On
February 11, 2009, we sold 200 shares of our “Series E Convertible Preferred
Stock”, with a stated value of $50,000 per share (the “Series E
preferred stock”), and issued warrants to purchase up to 9,230,769 shares of
common stock at $0.65 per share (the “Series E Financing”) to
Purdue. The 200 shares of Series E preferred stock held by Purdue are
convertible into 15,384,615 shares of common stock, reflecting a conversion
price of $0.65 per share. The closing price of our common stock on February 10,
2009, the last trading before the execution of the securities purchase
agreement, was $0.48
Upon the
closing of the Series E Financing, the holders of our Series D preferred stock
exchanged all 413.5 shares of their Series D preferred stock and accrued
dividends thereon for 445.442875 shares of Series E preferred stock, convertible
into 34,264,831 shares of common stock, reflecting a conversion price of $0.65
per share. Following the exchange, no shares of Series D preferred stock
remained outstanding and a certificate of elimination of the Series D preferred
stock was filed in Delaware. The rights and preferences of the Series E
preferred stock are substantially the same as the Series D preferred
stock. The exchange was completed principally so that the rights of
Purdue would be substantially the same as the rights of the holders of the
Series D preferred stock prior to the exchange.
The
following table sets forth the combined market price of the total shares
underlying the Series E preferred stock issued in the transactions described
above, based on the market value of our common stock on the date of
sale:
Date of Issuance
|
Shares of Common
Stock Issuable Upon
Conversion of Series
E Preferred Stock
|
Market Price
per share (2)
|
Aggregate Market
Value of
Underlying
Common Stock
|
Aggregate Premium
to Market Price on
Date of Issuance (3)
|
||||||||||||
April
11, 2008 (1)
|
31,807,655 | $ | 0.57 | $ | 18,130,363 | $ | 2,544,612 | |||||||||
February
11, 2009
|
17,841,791 | 0.48 | 8,564,060 | 3,033,104 | ||||||||||||
Totals
|
49,649,446 | $ | 26,694,423 | $ | 5,577,716 |
(1)
|
Includes
shares of common stock that were initially issuable upon conversion of
Series B preferred stock sold on May 2, 2007. The conversion price per
share on those shares was reduced to $0.65 from $1.00 in connection with
the financing that was completed on April 11,
2008.
|
(2)
|
Represents
the market price on the last trading day before execution of the related
securities purchase agreement.
|
(3)
|
Based
on a conversion price of $0.65 per
share.
|
Collaboration
Agreement with Mundipharma
Concurrently
with the closing of the Series E Financing, we entered into a collaboration
agreement with Mundipharma for the development, manufacture and
commercialization of licensed products including our lead compound, NOV-002, in
Europe (other than the Russian Territory), Asia (other than the Chinese
Territory) and Australia (collectively referred to as the “Mundipharma
Territory”). Mundipharma is an independent associated company of
Purdue.
Under the
collaboration agreement, Mundipharma received an exclusive license to develop,
manufacture, market, sell or otherwise distribute the licensed products and
improvements thereon in the MundipharmaTerritory. We are responsible
for the cost and execution of development, regulatory submissions and
commercialization of NOV-002 outside the Mundipharma Territory, and Mundipharma
is responsible for the cost and execution of certain development activities, all
regulatory submissions and all commercialization within the Mundipharma
Territory. In the unlikely event that Mundipharma is required to
conduct an additional Phase 3 clinical trial in first-line advanced-stage
non-small cell lung cancer in order to gain regulatory approval in Europe,
Mundipharma will be entitled to recover the full cost of such trial by reducing
milestone, fixed sales-based payments and royalty payments to us by up to
50% of the payments owed until Mundipharma recovers the full costs of such
trial. In order for Mundipharma or Novelos to access the other
party’s data or intellectual property related to independent trials described in
the collaboration agreement, the accessing party must pay the sponsoring party
50% of the cost of such trial.
The
launch of licensed products, including initiation of regulatory and pricing
approvals, and subsequent commercial efforts to market and sell licensed
products in each country in the Mundipharma Territory, will be determined by
Mundipharma based on its assessment of the commercial viability of the licensed
products, the regulatory environment and other factors. We have no
assurance that it will receive any amount of the launch payments, fixed
sales-based payments or royalties described below.
46
Mundipharma
will pay us $2.5 million upon the launch of NOV-002 in each country in the
Mundipharma Territory, up to a maximum of $25 million. In addition, Mundipharma
will make fixed sales-based payments up to an aggregate of $60 million upon the
achievement of certain annual sales levels payable once the annual net sales
exceed the specified thresholds. Mundipharma will also pay as
royalties to us, during the term of the Collaboration Agreement, a double-digit
percentage on net sales of licensed products, based upon a four-tier royalty
schedule, in countries within the Mundipharma Territory where we held
patents on the licensed technology as of the effective date of the
agreement. Royalties in countries in the Mundipharma Territory
where we did not hold patents as of the effective date will be paid at 50%
of the royalty rates in countries where patents were held. The royalties will be
calculated based on the incremental net sales in the respective royalty tiers
and shall be due on net sales in each country in the Mundipharma Territory where
patents are held until the last patent expires in the respective
country. In countries in the Mundipharma Territory where we did
not hold patents as of the effective date of the collaboration agreement,
royalties will be due until the earlier of 15 years from the date of the
collaboration agreement or the introduction of a generic in the respective
country resulting in a 20% drop in Mundipharma’s market share in such country.
For
countries in which patents are held, the collaboration agreement expires on a
country-by-country basis within the Mundipharma Territory on the earlier of (1)
expiration of the last applicable Novelos patent within the country or (2) the
determination that any patents within the country are invalid, obvious or
otherwise unenforceable. For countries in which no patents are held,
the collaboration agreement expires the earlier of 15 years from its effective
date or upon generic product competition in the country resulting in a 20% drop
in Mundipharma’s market share. We may terminate the collaboration agreement
upon breach or default by Mundipharma. Mundipharma may terminate the
collaboration agreement upon breach or default, filing of voluntary or
involuntary bankruptcy by Novelos, the termination of certain agreements with
companies associated with the originators of the licensed technology, or 30-day
notice for no reason. If any regulatory approval within the
Mundipharma Territory is suspended as a result of issues related to the safety
of the licensed products, then Mundipharma’s obligations under the collaboration
agreement will be suspended until the regulatory approval is
reinstated. If that reinstatement does not occur within 12 months of
the suspension, then Mundipharma may terminate the collaboration
agreement.
Since
entering into the collaboration agreement, we have been working closely with
Mundipharma on non-clinical, manufacturing and regulatory activities, as
well as planning future clinical trials with NOV-002.
Common
Stock Purchase Warrants
In
connection with the Series B Financing, we issued warrants to purchase an
aggregate of 7,500,000 shares of our common stock (the “Series B warrants”). The
Series B warrants had an initial exercise price of $1.25 per share and expired
in May 2012. In connection with the Series D Financing, the terms of the Series
B warrants were amended to reduce the exercise price to $0.65 per share and
extend the expiration date to April 2013.
In
connection with the Series D Financing, we issued five-year warrants to purchase
an aggregate of 4,365,381 shares of our common stock (the “Series D warrants”).
The Series D warrants have an exercise price of $0.65 per share and an initial
expiration date in April 2013.
In
connection with the Series E Financing, including the issuance of warrants to
purchase 9,230,769 shares of common stock (the “Series E warrants”) as described
above, the Series B warrants and the Series D warrants were amended to extend
their expiration date to December 31, 2015.
The
following table sets forth the combined market price of the total shares
underlying the common stock purchase warrants issued in the transactions
described above, based on the market value of our common stock on the date of
sale:
Date of Issuance
|
Shares of Common
Stock Issuable Upon
Exercise of
Warrants
|
Market Price
per share (2)
|
Aggregate Market
Value of
Underlying
Common Stock
|
Aggregate Premium
to Market Price on
Date of Issuance (3)
|
||||||||||||
April
11, 2008 (1)
|
11,865,381 | $ | 0.57 | $ | 6,763,267 | $ | 949,230 | |||||||||
February
11, 2009
|
9,230,769 | 0.48 | 4,430,769 | 1,569,231 | ||||||||||||
Totals
|
21,096,150 | $ | 11,194,036 | $ | 2,518,461 |
(1)
|
Includes
warrants to purchase common stock that were initially issued on May 2,
2007. The exercise price per share was reduced to $0.65 from $1.25 in
connection with the financing that was completed on April 11,
2008.
|
(2)
|
Represents
the market price on the last trading day before execution of the related
securities purchase agreement.
|
(3)
|
Based
on a conversion price of $0.65 per
share.
|
Registration
Rights Agreements
In
connection with the Series B Financing, we entered into a registration rights
agreement that required us to file with the SEC no later than June 1, 2007, a
registration statement covering the resale of 23,400,000 shares of common stock
(i.e. 100% of the shares of common stock issuable upon conversion of the Series
B preferred stock and exercise of the related warrants). We filed a registration
statement covering 23,400,000 shares of common stock on May 25, 2007. After
discussion with the SEC, the registration statement was amended to cover only
12,000,000 shares of common stock issuable upon conversion of 240 shares of the
Series B preferred stock. The holders of Series B preferred stock (i) consented
to the reduction of shares being covered by the registration statement from
23,400,000 to 12,000,000, (ii) agreed to extend the date by which the
registration statement must be declared effective from August 30, 2007 to
September 7, 2007 and (iii) waived, through September 7, 2007, any liquidated
damages arising as a result of the reduction in the number of shares being
registered and by the failure to have the registration statement declared
effective by August 30, 2007. The SEC declared this registration statement
effective on September 6, 2007 and the most recent post-effective amendment was
declared effective on April 27, 2009 and remains effective as of the date of the
filing of this registration statement.
47
On
April 11, 2008 in connection with the closing of the Series D Financing, the
holders of Series B preferred stock waived any and all liquidated damages
arising under the registration rights agreement during the period from September
7, 2007 through the closing of the Series D Financing as a result of our failure
to register 100% of the shares of common stock issuable upon conversion of the
Series B preferred stock and exercise of the related warrants. In addition, we
entered into an amendment to the above described registration rights agreement
with the holders of our Series B preferred stock to (i) revise the definition of
registrable securities under the agreement to only include the 12,000,000 shares
of common stock that are included on the registration statement that became
effective on September 6, 2007, (ii) clarify that our registration obligations
survive the exchange of Series B preferred stock for Series D preferred stock
and (iii) extend our registration obligations under the registration rights
agreement by one year. Under the amended registration rights agreement, we are
required to use our best efforts to keep the registration statement continuously
effective under the Securities Act until the earlier of the date when all the
registrable securities covered by the registration statement have been sold or
the third anniversary of the closing. We are allowed to suspend the use of the
registration statement for not more than 15 consecutive days or for a total of
not more than 30 days in any 12-month period without incurring liability for the
liquidated damages in certain circumstances.
In
connection with the Series D Financing, we entered into a registration rights
agreement (the “2008 Registration Rights Agreement”) with the investors (the
“Series D Investors”) which required us to file with the SEC no later than 5
business days following the six-month anniversary of the closing of the Series D
Financing, a registration statement covering the resale of (i) a number of
shares of common stock equal to 100% of the shares issuable upon conversion of
the Series D preferred stock (excluding 12,000,000 shares of common stock
issuable upon conversion of the Series D preferred stock that are included on a
prior registration statement), (ii) 4,365,381 shares of common stock issuable
upon exercise of the Series D warrants and (iii) 7,500,000 shares of common
stock issuable upon exercise of the Series B warrants. This
registration rights agreement provided for the payment of liquidated damages in
the event that the registration statement was not filed by the time specified.
That registration statement was not filed.
In
connection with the Series E Financing, the Series D Investors waived all
damages that had accrued through February 11, 2009 as a result of our failure to
file the registration statement. Also, simultaneously with the
closing of the Series E Financing we entered into a new registration rights
agreement with Purdue and the Series D Investors replacing the 2008 Registration
Rights Agreement. We were required to file with the SEC by September
15, 2009, a registration statement covering the resale of (i) a number of shares
of common stock equal to 100% of the shares issuable upon conversion of the
Series E preferred stock (excluding 12,000,000 shares of common stock included
on a prior registration statement), (ii) 9,230,769 shares of common stock
issuable upon exercise of the warrants issued to Purdue and (iii) 11,865,381
shares of common stock issuable upon exercise of warrants held by the Series D
Investors. We are required to use our best efforts to have this registration
statement declared effective and to keep the registration statement continuously
effective under the Securities Act until the earlier of the date when all the
registrable securities covered by the registration statement have been sold or
until February 11, 2011. We are allowed to suspend the use of the registration
statement for not more than 15 consecutive days or for a total of not more than
30 days in any 12-month period. The registration statement was filed on
September 15, 2009.
Pursuant
to a consent and amendment agreement between us and the holders of our Series E
preferred stock, and in response to comments received from the SEC, we have
amended this registration statement to reduce the number of shares offered from
58,745,592 to 19,000,000. In addition, we have agreed to use our
reasonable best efforts to register the shares we have excluded from this
offering as may be permitted by the SEC until such time as all of these shares
either have been registered or may be sold without restriction in reliance on
Rule 144 under the Securities Act.
48
Placement
Agent
Upon the
closing of the Series B Financing we paid a placement agent fee to Rodman &
Renshaw LLC (“Rodman”) and Rodman’s subagent, Emerging Growth Equities, Ltd., in
cash in the amount of $1,050,000 and issued Rodman and the subagent warrants to
purchase 765,000 and 135,000 shares of common stock, respectively, having the
same terms as the warrants issued to the investors. This placement agent fee was
made in accordance with a letter agreement dated February 12, 2007 between us
and Rodman. We also agreed to indemnify Rodman from claims arising in relation
to the services it provided to us in connection with the letter agreement.
Following the closing of the Series D Financing we paid Rodman a cash fee of
$100,000.
Advisor
Fees
Ferghana
Partners, Inc. (“Ferghana”), a New York consulting firm, received a cash fee for
their services in connection with the negotiation and execution of the
collaboration agreement equal to $700,000 (or seven percent (7%) of the gross
proceeds to the Company resulting from the sale of Series E preferred stock and
the Series E warrants to Purdue. Ferghana will also receive
cash fees equal to six percent (6%) of all payments to Novelos by Mundipharma
under the collaboration agreement other than royalties on net
sales.
Gross
Proceeds and Payments to Selling Stockholders and Placement Agents in connection
with Sales of Convertible Preferred Stock and Warrants
The
gross proceeds totaled $30,675,000 from the sales of convertible preferred stock
and warrants described above. In addition to the fees paid to the placement
agents and advisors, we also reimbursed certain expenses incurred by the
investors and Rodman in connection with the offerings. The following table
summarizes the net proceeds received by us after subtracting any payments that
have been made or that are or may be required to be made to the selling
stockholders, placement agents or any of their affiliates:
Gross
proceeds (Series B Financing)
|
$ | 15,000,000 | ||
Gross
proceeds (Series D Financing)
|
5,675,000 | |||
Gross
proceeds (Series E Financing)
|
10,000,000 | |||
Less
payments made:
|
||||
2007
Financing:
|
||||
Placement
agent fee – Rodman & Renshaw LLC
|
892,500 | |||
Placement
agent fee – Emerging Growth Equities, Ltd.
|
157,500 | |||
Reimbursement
of placement agent legal fees
|
18,400 | |||
Reimbursement
of investor legal fees
|
77,000 | |||
Reimbursement
of due diligence expenses
|
7,000 | |||
2008
Financing:
|
||||
Placement
agent fee – Rodman and Renshaw LLC
|
100,000 | |||
Reimbursement
of investor legal fees
|
25,000 | |||
2009
Financing :
|
||||
Advisor
fee – Ferghana Partners
|
700,000 | |||
Reimbursement
of investor legal fees
|
10,000 | |||
Dividends:
|
||||
Dividends
paid to holders of Series B preferred stock on September 30,
2007
|
562,500 | |||
Dividends
paid to holders of Series B preferred stock on April 12,
2008
|
675,000 | |||
Dividends
exchanged for shares of Series E preferred stock on February 11,
2009
|
1,597,000 | |||
Less
payments that may be required to be made:
|
||||
Dividends
accumulated from February 11, 2009 through February 11,
2010
|
2,904,000 | |||
Net
|
$ | 22,949,100 | ||
As
of January 21, 2010:
|
||||
Excess
of market value of underlying common stock over
proceeds
|
$ | 123,550,399 | ||
Excess
of market value of underlying common stock over proceeds, less exercise
price
|
$ | 109,837,902 |
Sale
of Common Stock and Warrants to Purdue
Securities
Purchase Agreement
On
August 25, 2009, we entered into the August 2009 Purchase Agreement with
Purdue to sell at two or more closings 13,636,364 shares of our common stock and
warrants to purchase approximately 4,772,728 shares of our common stock at an
exercise price of $0.66, expiring December 31, 2015, for an aggregate purchase
price of $9,000,000. Upon entering into the August 2009 Purchase
Agreement, we initially issued and sold Purdue 5,303,030 shares of common
stock and a warrant to purchase 1,856,062 shares of common stock at $0.66 per
share for approximately $3,500,000 (the “Initial Closing”). On November 10, 2009
we issued and sold Purdue 8,333,334 shares of common stock and a warrant to
purchase 2,916,668 shares of common stock at $0.66 per share for approximately
$5,500,000 in gross proceeds. This sale represented the final closing under the
August 2009 Purchase Agreement.
Under the
August 2009 Purchase Agreement, Novelos is prohibited from negotiating with any
party other than Purdue for the license or other acquisition of NOV-002 Rights
in the United States (the “U.S. License”) until Purdue receives certain
information related to our Phase 3 clinical trial in non-small cell lung cancer
(the “Exclusive Negotiation Period”). If, during the Exclusive
Negotiation Period, Purdue and Novelos agree on terms for a definitive agreement
for the U.S. License, Novelos shall grant Purdue an option to enter into such
definitive agreement within 30 days after the expiration of the Exclusive
Negotiation Period. Purdue has also been granted a right of first
refusal (the “Right of First Refusal”) on bona fide offers to obtain NOV-002
Rights in the United States received from third parties and approved by our
board of directors. Under the Right of First Refusal, Novelos is
required to communicate to Purdue the terms of any such third-party offers
received and Purdue will have 30 days to enter into a definitive agreement with
Novelos on substantially similar terms that provide no lesser economic benefit
to Novelos as in the third-party offer. The Right of First Refusal
terminates upon specified business combinations, occurring after the Exclusive
Negotiation Period. Novelos has separately entered into letter agreements with
Mundipharma and an independent associated company of Mundipharma providing for a
conditional exclusive right to negotiate for, and a conditional right of first
refusal with respect to, NOV-002 Rights (i) for Mexico, Central America, South
America and the Caribbean and (ii) for Canada, respectively.
Pursuant
to the August 2009 Purchase Agreement, Purdue will have the right to either
designate one member to Novelos’ board of directors (the “Board”) or designate
an observer to attend all meetings of the Board, committees thereof and access
to all information made available to members of the Board. This right
shall last until the later of such time as Purdue or its independent associated
companies no longer hold at least one-half of the common stock purchased
pursuant to the August 2009 Purchase Agreement and no longer hold at least
one-half of the Series E preferred stock issued on February 11, 2009. Purdue
also has the right to participate in future equity financings in proportion to
their pro rata ownership of common and preferred stock.
49
Common
Stock Purchase Warrant
The
common stock purchase warrants have an exercise price of $0.66 per
share and expire on December 31, 2015. The warrant exercise
price and/or the number of shares of common stock issuable pursuant to such
warrant will be subject to adjustment for stock dividends, stock splits or
similar capital reorganizations so that the rights of the warrant holders after
such event will be equivalent to the rights of warrant holders prior to such
event.
Registration
Rights Agreement
As
part of this transaction, we entered into a registration rights agreement with
Purdue. The registration rights agreement requires us to file with
the Securities and Exchange Commission no later than May 17, 2010, a
registration statement covering the resale of all the shares of common stock and
all shares of common stock issuable upon exercise of the warrants, issued
pursuant to the August 2009 Purchase Agreement. We are required to use our best
efforts to have the registration statement declared effective and keep the
registration statement continuously effective under the Securities Act until the
earlier of the date when all the registrable securities covered by the
registration statement have been sold or the second anniversary of the
closing. In the event we fail to file the registration statement
timely, we will be required to pay Purdue liquidated damages equal to 1.5% per
month (pro-rated on a daily basis for any period of less than a full month) of
the aggregate purchase price of the common stock until we file the delinquent
registration statement. We will be allowed to suspend the use of the
registration statement for not more than 15 consecutive days or for a total of
not more than 30 days in any 12-month period.
SELLING
STOCKHOLDERS
Selling
Stockholders Table
Based
on the information supplied to us by each selling stockholder, the following
table sets forth the approximate number of shares beneficially owned as of
January 18, 2010 by each of the selling stockholders and their pledgees,
assignees and successors in interest. The ‘‘Right to Acquire’’ column reflects
beneficial ownership of shares subject to warrants and convertible preferred
stock that may be exercised or converted within 60 days after January 18, 2010.
The “Shares Offered” column reflects all of the shares that each selling
stockholder may offer under this prospectus. Percentage ownership is based on
71,391,957 shares issued and outstanding as of January 18, 2010. The table
assumes that the selling stockholders sell all of the shares. The aggregate
market value of the shares being offered under this prospectus, based on the
last reported sales price of our common stock on the OTC Electronic Bulletin
Board on January 25, 2010 is $40,850,000.
We
prepared the table below based on information supplied to us by the selling
stockholders. Although we have assumed for purposes of the table that the
selling stockholders will sell all of the shares offered by this prospectus,
because the selling stockholders may offer from time to time some or all of
their shares covered under this prospectus, or in another permitted manner, no
assurances can be given as to the actual number of shares that will be resold by
the selling stockholders or that will be held by the selling stockholders after
completion of the resales.
The
terms of the Series E certificate of designations and common stock purchase
warrants provide that the number of shares to be obtained by each of the holders
of Series E preferred stock and warrants, upon conversion of Series E
preferred stock or exercise of our common stock purchase warrants, cannot exceed
the number of shares that, when combined with all other shares of our common
stock and securities owned by each of them, would result in any one of them
owning more than 4.99% or 9.99%, as applicable, of our outstanding common stock
at any given point in time, provided however that this limitation may be revoked
by the stockholder upon 61 days’ prior notice to the Company. Such limitations
do not apply in the event of automatic conversion of Series E preferred
stock. For purposes of the table below, we have disregarded these
blocking provisions.
50
Information
concerning the selling stockholders may change from time to time and changed
information will be presented in a supplement to this prospectus if and when
necessary and required. Except as described above, there are currently no
agreements, arrangements or understandings with respect to the resale of any of
the shares covered by this prospectus.
Except
as described above under the caption “Private Placements of Our Securities with
the Selling Stockholders” and as set forth in the selling stockholders table
below, including in the footnotes to the table, none of the selling stockholders
has had any material relationship with us within the past three
years.
Beneficial Ownership Prior to Offering
|
Beneficial Ownership
After Offering
|
||||||||||||||||||
Name of Beneficial Owner
|
Outstanding
|
Right to
Acquire
|
Total
|
Shares
Offered (1)
|
Outstanding
|
Right to
Acquire
|
Percent
|
||||||||||||
Beacon
Company (2)
|
6,818,182
|
14,694,056
|
21,512,238
|
3,980,659
|
6,818,182
|
10,713,397
|
21.4
|
||||||||||||
Rosebay
Medical Company L.P. (2)
|
6,818,182
|
14,694,057
|
21,512,239
|
3,980,659
|
6,818,182
|
10,713,398
|
21.4
|
||||||||||||
Xmark
Opportunity Fund, Ltd.
|
0
|
5,417,945
|
6,158,021
|
1,458,745
|
0
|
2,649,308
|
3.6
|
||||||||||||
Xmark
Opportunity Fund, L.P.
|
0
|
2,747,434
|
3,076,357
|
729,372
|
0
|
1,324,985
|
1.8
|
||||||||||||
Xmark
JV Investment Partners, LLC
|
0
|
3,055,126
|
3,055,126
|
729,372
|
0
|
1,525,754
|
2.1
|
||||||||||||
Caduceus
Capital Master Fund Limited
|
0
|
4,223,076
|
4,223,076
|
1,341,022
|
0
|
2,620,533
|
3.5
|
||||||||||||
Caduceus
Capital II, L.P.
|
0
|
3,387,307
|
3,387,307
|
1,087,487
|
0
|
1,865,884
|
2.6
|
||||||||||||
Summer
Street Life Sciences Investors LLC
|
0
|
1,213,268
|
1,213,268
|
392,405
|
0
|
820,863
|
1.1
|
||||||||||||
UBS
Eucalyptus Fund, L.L.C.
|
0
|
2,195,000
|
2,605,576
|
616,601
|
0
|
1,289,851
|
1.8
|
||||||||||||
PW
Eucalyptus Fund, Ltd.
|
0
|
226,345
|
242,768
|
71,146
|
0
|
139,592
|
*
|
||||||||||||
Knoll
Special Opportunities Fund II Master Fund, Ltd.
|
0
|
5,503,619
|
5,772,104
|
1,262,542
|
0
|
4,241,077
|
5.6
|
||||||||||||
Europa
International, Inc. (3)
|
1,399,300
|
6,959,541
|
8,368,841
|
1,733,428
|
1,399,300
|
5,226,113
|
8.7
|
||||||||||||
Hunt
BioVentures, L.P.
|
0
|
6,798,206
|
6,798,206
|
1,616,562
|
0
|
5,181,644
|
6.8
|
* Less
than 1%
(1)
|
Pursuant
to Rule 416, shares offered also include shares that may become issuable
as stock dividends on Series E Preferred
Stock.
|
(2)
|
Shares
in the “Outstanding” column and 2,386,365 warrants to purchase common
stock included in the “Right to Acquire” column were issued to Purdue
Pharma, L.P. in financing transactions that were completed on August
25, 2009 and November 10, 2009. The shares and warrants were
transferred to Beacon Company and Rosebay Medical Company L.P, both
independent associated companies of Purdue.
|
51
(3)
|
Shares in the “Outstanding”
column consist of shares purchased in market
transactions.
|
Voting
and Investment Control
The table
below sets forth selling stockholders that are entities and the names of
individuals having voting and investment control over the securities held by
these entities. We determined beneficial ownership based upon information
supplied to us by the selling stockholders and in accordance with rules
promulgated by the Securities and Exchange Commission, and the information is
not necessarily indicative of beneficial ownership for any other purpose. The
inclusion of shares listed as beneficially owned does not constitute an
admission of beneficial ownership. Except as otherwise indicated, we believe
that the persons or entities named in the following table have voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable,
and have not held any office or maintained any material relationship, except as
investor or as described above, with us, or any of our predecessors or
affiliates, over the past three years. Certain of the individuals with voting
and investment control have indicated that they exercise such control through a
corporate or other organizational structure, which structural information has
not been included.
The
following entities have informed us that the following individuals have voting
and investment control over our securities held by them:
Entity
|
Voting and Investment Control
|
|
Beacon
Company
|
Jonathan
G. White, Joerg Fischer and Steven Meiklejohn as directors of Stanhope
Gate Corp., managing general partner of Beacon Company, and Jonathan G.
White, Joerg Fischer, Stuart D. Baker, Christopher B. Mitchell, Leslie J.
Schreyer and Charles G. Lubar as directors of Beacon Trust Company Ltd.,
as trustee of the Beacon Trust, general partner of Beacon Company
|
|
Rosebay
Medical Company L.P.
|
Dr.
Richard S. Sackler, Jonathan D. Sackler and Stephen A. Ives as directors
and/or officers of Rosebay Medical Company, Inc., general partner of
Rosebay Medical Company L.P.
|
|
Xmark
Opportunity Fund, Ltd.
|
Mitchell
D. Kaye and David C. Cavalier
|
|
Xmark
Opportunity Fund, L.P.
|
Mitchell
D. Kaye and David C. Cavalier
|
|
Xmark
JV Investment Partners, LLC
|
Mitchell
D. Kaye and David C. Cavalier
|
|
Caduceus
Capital Master Fund Limited
|
Samuel
D. Isaly
|
|
Caduceus
Capital II, L.P.
|
Samuel
D. Isaly
|
|
Summer
Street Life Sciences Investors LLC
|
Samuel
D. Isaly
|
|
UBS
Eucalyptus Fund, L.L.C.
|
Samuel
D. Isaly
|
|
PW
Eucalyptus Fund, Ltd.
|
Samuel
D. Isaly
|
|
Knoll
Special Opportunities Fund II Master Fund, Ltd.
|
Fred
Knoll, KOM Capital Management as Investment Manager for Knoll Special
Opportunities Fund II Master Fund, Ltd.
|
|
Europa
International, Inc.
|
Fred
Knoll, Knoll Capital Management as Investment Manager for Europa
International Inc.
|
|
Hunt
BioVentures, L.P.
|
Michael
T. Bierman, Christopher W. Kleinert, J. Fulton Murray III
|
52
PLAN
OF DISTRIBUTION
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices,
at prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The selling stockholders may use any
one or more of the following methods when disposing of shares or interests
therein:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
short
sales;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling
stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this
prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The
selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
53
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this
offering. Upon any exercise of the warrants by payment of cash, however, we will
receive the exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities
Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act. Selling stockholders who are "underwriters" within
the meaning of Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agent, dealer or underwriter, and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling stockholders for the purpose
of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
We have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
We
have agreed with the selling stockholders to keep the registration statement of
which this prospectus constitutes a part effective until the earlier of (1) such
time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or (2) February
11, 2011.
DESCRIPTION
OF SECURITIES
Under our
amended and restated certificate of incorporation, our authorized capital stock
consists of 225,000,000 shares of common stock, $0.00001 par value per share and
7,000 shares of preferred stock, $0.00001 par value per share.
Our
amended and restated certificate of incorporation authorizes us to issue shares
of our preferred stock from time to time in one or more series without
stockholder approval. As of January 18, 2010, we had designated 272 shares of
Series C cumulative convertible preferred stock, 204 of which were issued and
outstanding as of that date and 735 shares of Series E preferred stock,
538.76581925 of which were issued and outstanding as of that date.
54
All
outstanding shares of our common stock and preferred stock are duly authorized,
validly issued, fully-paid and non-assessable.
Common
Stock
Voting. Holders of our common
stock are entitled to one vote per share held of record on all matters to be
voted upon by our stockholders. Our common stock does not have cumulative voting
rights. Persons who hold a majority of the outstanding common stock entitled to
vote on the election of directors can elect all of the directors who are
eligible for election.
Dividends. Subject to
preferences that may be applicable to the holders of any outstanding shares of
our preferred stock, the holders of our common stock are entitled to receive
such lawful dividends as may be declared by our board of directors.
Liquidation and Dissolution.
In the event of our liquidation, dissolution or winding up, and subject to the
rights of the holders of any outstanding shares of our preferred stock, the
holders of shares of our common stock will be entitled to receive pro rata all
of our remaining assets available for distribution to our
stockholders.
Other Rights and
Restrictions. Our charter prohibits us from granting preemptive rights to
any of our stockholders. All outstanding shares are fully paid and
nonassessable.
Listing. Our common stock is
traded on the over-the-counter bulletin board under the trading symbol
“NVLT.OB”.
Series
C Cumulative Convertible Preferred Stock
Stated Value: The Series C
preferred stock has a stated value of $12,000 per share.
Voting Rights: The Series C
preferred stockholders do not have voting rights.
Dividends: The Series C
preferred stock had an annual dividend rate of 8% until October 1, 2008 and
thereafter has an annual dividend rate of 20%. The dividends are payable
quarterly commencing on June 30, 2007. Such dividends shall only be paid after
all outstanding dividends on the Series E preferred stock (with respect to the
current fiscal year and all prior fiscal years) shall have been paid to the
holders of the Series E preferred stock. Such dividends shall be paid in
cash.
Conversion: Each share of
Series C preferred stock is currently convertible at a price of $0.65 per common
share. The Series C preferred stock can be converted only to the extent that the
Series C stockholder will not, as a result of the conversion, hold in excess of
4.99% of the total outstanding shares of our common stock, provided however that
this limitation may be revoked by the stockholder upon 61 days’ prior notice to
us.
Antidilution : Upon the
occurrence of a stock split, stock dividend, combination of our common stock
into a smaller number of shares, issuance of any of our shares or other
securities by reclassification of our common stock, merger or sale of
substantially all of our assets, the conversion rate shall be adjusted so that
the conversion rights of the Series C preferred stock stockholders will be
equivalent to the conversion rights of the Series C preferred stock stockholders
prior to such event.
Redemption: The Series C
preferred stock is not redeemable at the option of the holder. However, we may
redeem the Series C preferred stock by paying to the holder a sum of money equal
to one hundred twenty percent (120%) of the stated value per share plus any
accrued but unpaid dividends upon 30 days’ (during which time the Series C
preferred stock may be converted) prior written notice if a registration
statement has been filed with and declared effective by the Securities and
Exchange Commission covering the shares of our common stock issuable upon
conversion of the Series C preferred stock.
55
Dissolution: In the event of
any voluntary or involuntary liquidation, dissolution or winding up of our
affairs, the Series C preferred stock will be treated as senior to our common
stock. After all required payments are made to holders of Series E preferred
stock, the Series C preferred stockholders will be entitled to receive first,
$12,000 per share and all accrued and unpaid dividends. If, upon any winding up
of our affairs, our remaining assets available to pay the holders of Series C
preferred stock are not sufficient to permit the payment in full, then all our
assets will be distributed to the holders of our Series C preferred stock (and
any remaining holders of Series E preferred stock as may be required) on a pro
rata basis.
Series
E Convertible Preferred Stock
Stated Value: The Series E
preferred stock has a stated value of $50,000 per share.
Voting and Board Rights: The
Series E preferred stockholders are entitled to vote on all matters on which the
holders of common stock are entitled to vote. The number of votes to which each
holder of Series E preferred stock is entitled is equal to the number of shares
of common stock that would be issued to such holder if the Series E Preferred
Stock had been converted at the record date for the meeting of stockholders,
subject to the limitations described under the subcaption “Conversion”
below.
Pursuant
to the Securities Purchase Agreement dated March 26, 2008, the Xmark
Funds have the right to designate one member to our Board of Directors.
This right shall last until such time as the Xmark Funds no longer hold at
least one-third of the preferred stock issued to them at closing. In addition,
the Xmark Funds and the OrbiMed Funds (together with the Xmark Funds,
the “Lead Investors”) have the right to designate one observer to attend all
meetings of our Board of Directors, committees thereof and access to all
information made available to members of the Board. This right lasts until such
time as the Lead Investors no longer hold at least one-third of the preferred
stock issued to them. Pursuant to the Purchase Agreement dated
August 25, 2009, Purdue has the right to either designate one member of our
Board of Directors or designate an observer to attend all meetings of our Board
of Directors, committees thereof and access to all information made available to
members of the Board. This right lasts until the later of such time as Purdue or
its assignees no longer hold at least one-half of the common stock and preferred
stock issued to them.
Dividends: The Series E
preferred stock has a dividend rate of 9% per annum, payable semi-annually. Such
dividends may be paid in cash, in shares of Series E preferred stock or in
registered shares of common stock. While any shares of Series E preferred stock
remain outstanding, we are prohibited from paying dividends to common
stockholders or any other class of preferred stock other than Series C preferred
stock without the prior consent of the Series E holders. If consent is given,
the holders of outstanding shares of Series E preferred stock are also entitled
to participate in any dividends paid to common stockholders.
Conversion: Each share of
Series E preferred stock is convertible at a price of $0.65 per common share at
any time after issuance. The Series E preferred stock can be converted only to
the extent that the Series E stockholder will not, as a result of the
conversion, beneficially hold in excess of 4.99% or 9.99%, as applicable, of the
total outstanding shares of our common stock, provided however that this
limitation may be revoked by the stockholder upon 61 days’ prior notice to the
Company. If there is an effective registration statement covering the shares of
common stock underlying the outstanding shares of Series E preferred stock and
the daily volume weighted average price (“VWAP”), as defined in the Series E
Certificate of Designations, of our common stock exceeds $2.00 for 20
consecutive trading days, then the outstanding Series E preferred stock will
automatically convert, together with accrued dividends, into common
stock at the conversion price then in effect.
Antidilution : Upon the
occurrence of a stock split, stock dividend, combination of our common stock
into a smaller number of shares, issuance of any of our shares or other
securities by reclassification of our common stock, merger or sale of
substantially all of our assets, the conversion rate shall be adjusted so that
the conversion rights of the Series E preferred stock will be equivalent to the
conversion rights of the Series E preferred stock stockholders prior to such
event.
56
Liquidation: The Series E
preferred stock ranks senior to all other outstanding series of preferred stock
and common stock as to the payment of dividends and the distribution of assets
upon voluntary or involuntary liquidation, dissolution or winding up of our
affairs. The Series E preferred stockholders will be entitled to receive first,
prior to any distribution of any assets or surplus funds of the Company to the
holders of common stock or any other class of capital stock, an amount equal to
$50,000 per share and all accrued and unpaid dividends. They are then entitled
to participate with the holders of the remaining classes of common stock in the
distribution of remaining assets on a pro rata basis. If, upon any winding up of
our affairs, our assets available to pay the holders of Series E preferred stock
are not sufficient to permit the payment in full, or the amounts described
above, then all our assets will be distributed to the holders of our Series E
preferred stock on a pro rata basis.
If we
sell, lease or otherwise transfer substantially all of our assets, consummate a
business combination in which we are not the surviving corporation or, if we are
the surviving corporation, if the holders of a majority of our common stock
immediately before the transaction do not hold a majority of our common stock
immediately after the transaction, in one or a series of events, change the
majority of the members of our board of directors, or if any person or entity
(other than the holders of Series E preferred stock) acquires more than 50% of
our outstanding stock, then the holders of Series E preferred stock are entitled
to receive the same liquidation preference as described above, except that after
receiving $50,000 per preferred share and any accrued but unpaid dividends, they
are not entitled to participate with other classes or common stock in a
distribution of the remaining assets.
Other restrictions: For as long as any
shares of Series E preferred stock remain outstanding, without the prior consent
of the requisite holders of Series E preferred stock (generally the Xmark Funds,
the OrbiMed affiliated funds and Purdue), the Company is prohibited from (i)
paying dividends to common stockholders; (ii) amending the Company’s certificate
of incorporation; (iii) issuing any equity security or any security convertible
into or exercisable for any equity security at a price of $0.65 or less or with
rights senior to the Series E preferred stock (except for certain exempted
issuances); (iv) increasing the number of shares of Series E preferred stock or
issuing any additional shares of Series E preferred stock other than the shares
designated in the Series E Certificate of Designations; (v) selling, licensing
or otherwise granting any rights with respect to all or substantially all of the
Company’s assets (and in the case of licensing, any material intellectual
property) or the Company's business and shall not enter into a merger or
consolidation with another company unless Novelos is the surviving corporation,
the Series E preferred stock remains outstanding, there are no changes to the
rights and preferences of the Series E preferred stock and there is not created
any new class of capital stock senior to the Series E preferred stock; (vi)
redeeming or repurchasing any capital stock other than Series E preferred stock;
(vii) incurring any new debt for borrowed money in excess of $500,000 and (viii)
changing the number of the Company’s directors.
Anti-Takeover
Effect of Certain Charter and By-Law Provisions
Provisions
of our charter and our by-laws could make it more difficult to acquire us
by means of a merger, tender offer, proxy contest, open market purchases,
removal of incumbent directors and otherwise. These provisions, which are
summarized below, are expected to discourage types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to first negotiate with us. We believe that the benefits
of increased protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us outweigh
the disadvantages of discouraging takeover or acquisition proposals because
negotiation of these proposals could result in an improvement of their terms.
Authorized but Unissued
Stock. We have shares of common stock and preferred stock available for
future issuance, in some cases, without stockholder approval. We may issue these
additional shares for a variety of corporate purposes, including public
offerings to raise additional capital, corporate acquisitions, stock dividends
on our capital stock or equity compensation plans.
The
existence of unissued and unreserved common stock and preferred stock may enable
our board of directors to issue shares to persons friendly to current management
or to issue preferred stock with terms that could render more difficult or
discourage a third-party attempt to obtain control of us, thereby protecting the
continuity of our management. In addition, if we issue preferred stock, the
issuance could adversely affect the voting power of holders of common stock and
the likelihood that such holders will receive dividend payments and payments
upon liquidation.
57
Vacancies on the Board of
Directors. Our by-laws provide that any vacancy on the board of
directors, however occurring, including a vacancy resulting from an enlargement
of the board, may be filled only by the vote of a majority of the directors then
in office. This limitation on the filling of vacancies could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, control of us.
Notice Periods for Stockholder
Meetings. Our by-laws provide that for business to be brought by a
stockholder before an annual meeting of stockholders, the stockholder must
give written notice to the corporation not less than 90 nor more than 120
days prior to the one year anniversary of the date of the annual meeting of
stockholders of the previous year; provided, however, that in the event that the
annual meeting of stockholders is called for a date that is not within 30 days
before or after such anniversary date, notice by the stockholder must be
received not later than the close of business on the tenth day following the day
on which the corporation's notice of the date of the meeting is first given
or made to the stockholders or disclosed to the general public, whichever occurs
first.
Special Meeting of
Stockholders. Our by-laws provide that any action required or permitted
to be taken by our stockholders at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before the
meeting.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
charter contains provisions to indemnify our directors and officers to the
maximum extent permitted by Delaware law. We believe that indemnification under
our charter covers at least negligence on the part of an indemnified person. Our
charter permits us to advance expenses incurred by an indemnified person in
connection with the defense of any action or proceeding arising out of the
person’s status or service as our director, officer, employee or other agent
upon an undertaking by the person to repay those advances if it is ultimately
determined that the person is not entitled to indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We are a
reporting company and file annual, quarterly and special reports, and other
information with the Securities and Exchange Commission. Copies of the reports
and other information may be read and copied at the SEC’s Public Reference Room
at 100 F Street NE, Washington, D.C. 20549. You can request copies of such
documents by writing to the SEC and paying a fee for the copying cost. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
58
This
prospectus is part of a registration statement on Form S-1 that we filed with
the SEC. Certain information in the registration statement has been omitted from
this prospectus in accordance with the rules and regulations of the SEC. We have
also filed exhibits and schedules with the registration statement that are
excluded from this prospectus. For further information you may:
|
·
|
read a copy of the registration
statement, including the exhibits and schedules, without charge at the
SEC’s Public Reference Room;
or
|
|
·
|
obtain a copy from the SEC upon
payment of the fees prescribed by the
SEC.
|
LEGAL
MATTERS
The
validity of the securities being offered by this prospectus has been passed upon
for us by Foley Hoag LLP, Boston, Massachusetts.
EXPERTS
Stowe
& Degon LLC have audited our financial statements as of December 31, 2008
and 2007 and for the years then ended. The financial statements referred to
above are included in this prospectus with reliance upon the independent
registered public accounting firm’s opinion based on its expertise in accounting
and auditing.
59
FINANCIAL
STATEMENTS
INDEX
TO FINANCIAL STATEMENTS FOR NOVELOS THERAPEUTICS, INC.
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-2 | |||
Balance
Sheets at September 30, 2009, December 31, 2008 and 2007
|
F-3 | |||
Statements
of Operations for the Nine Months Ended September 30, 2009 and 2008 and
the Years Ended December 31, 2008 and 2007
|
F-4 | |||
Statements
of Redeemable Preferred Stock and Stockholders’ Deficiency for the Nine
Months Ended September 30, 2009 and the Years Ended December 31, 2008 and
2007
|
F-5 | |||
Statements
of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 and
the Years Ended December 31, 2008 and 2007
|
F-6 | |||
Notes
to Financial Statements
|
F-7 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
Novelos
Therapeutics, Inc.
Newton,
Massachusetts
We have
audited the accompanying balance sheets of Novelos Therapeutics, Inc. as of
December 31, 2008 and 2007 and the related statements of operations, redeemable
preferred stock and stockholders’ deficiency, and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Novelos Therapeutics, Inc. as of
December 31, 2008 and 2007 and the results of its operations, changes in
stockholders’ deficiency, and cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred continuing losses in the development of its
products and has a stockholders’ deficiency at December 31, 2008. These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in this regard are described in Note
1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Stowe
& Degon LLC
Westborough,
Massachusetts
March 17,
2009
F-2
NOVELOS
THERAPEUTICS, INC.
BALANCE
SHEETS
September 30,
|
December 31,
|
December 31,
|
||||||||||
2009
(unaudited)
|
2008
(audited)
|
2007
(audited)
|
||||||||||
ASSETS
|
||||||||||||
CURRENT
ASSETS:
|
||||||||||||
Cash
and equivalents
|
$ | 5,567,114 | $ | 1,262,452 | $ | 9,741,518 | ||||||
Restricted
cash
|
— | — | 1,184,702 | |||||||||
Prepaid
expenses and other current assets
|
359,969 | 129,785 | 133,281 | |||||||||
Total
current assets
|
5,927,083 | 1,392,237 | 11,059,501 | |||||||||
FIXED
ASSETS, NET
|
54,028 | 58,451 | 32,809 | |||||||||
DEPOSITS
|
15,350 | 15,350 | 15,350 | |||||||||
TOTAL
ASSETS
|
$ | 5,996,461 | $ | 1,466,038 | $ | 11,107,660 | ||||||
LIABILITIES,
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIENCY
|
||||||||||||
CURRENT
LIABILITIES:
|
||||||||||||
Accounts
payable and accrued liabilities
|
$ | 2,688,469 | $ | 4,653,912 | $ | 6,372,478 | ||||||
Accrued
compensation
|
187,264 | 240,639 | 349,412 | |||||||||
Accrued
dividends
|
2,411,558 | 1,689,322 | 337,500 | |||||||||
Derivative
liability
|
2,088,176 | — | — | |||||||||
Deferred
revenue – current
|
33,333 | 33,333 | — | |||||||||
Total
current liabilities
|
7,408,800 | 6,617,206 | 7,059,390 | |||||||||
DEFERRED
REVENUE – NONCURRENT
|
408,334 | 433,333 | — | |||||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||||||
REDEEMABLE
PREFERRED STOCK:
|
||||||||||||
Series
B convertible preferred stock, $0.00001 par value; 400 shares designated;
300 shares issued and outstanding at December 31, 2007
|
— | — | 9,918,666 | |||||||||
Series
D convertible preferred stock, $0.00001 par value; 420 shares designated;
413.5 shares issued and outstanding at December 31, 2008 (liquidation
preference $22,070,562 at December 31, 2008)
|
— | 13,904,100 | — | |||||||||
Series
E convertible preferred stock, $0.00001 par value; 735 shares designated;
606.399338125 shares issued and outstanding at September 30, 2009 (Note 6)
(liquidation preference $32,063,367 at September 30, 2009)
|
20,381,810 | — | — | |||||||||
Total
redeemable preferred stock
|
20,381,810 | 13,904,100 | 9,918,666 | |||||||||
STOCKHOLDERS’
DEFICIENCY:
|
||||||||||||
Preferred
Stock, $0.00001 par value; 7,000 shares authorized: Series C 8% cumulative
convertible preferred stock; shares issued and outstanding: 232 at
September 30, 2009; 272 at December 31, 2008 and 2007 (liquidation
preference $3,452,160 at September 30, 2009)
|
— | — | — | |||||||||
Common
stock, $0.00001 par value; 150,000,000 shares authorized; 55,455,394,
43,975,656 and 39,260,272 shares issued and outstanding at September
30, 2009, December 31, 2008 and December 31, 2007, respectively
|
555 | 440 | 392 | |||||||||
Additional
paid-in capital
|
41,008,571 | 40,204,112 | 37,370,959 | |||||||||
Accumulated
deficit
|
(63,211,609 | ) | (59,693,153 | ) | (43,241,747 | ) | ||||||
Total
stockholders’ deficiency
|
(22,202,483 | ) | (19,488,601 | ) | (5,870,396 | ) | ||||||
TOTAL
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIENCY
|
$ | 5,996,461 | $ | 1,466,038 | $ | 11,107,660 |
See
notes to financial statements.
F-3
NOVELOS
THERAPEUTICS, INC.
STATEMENTS
OF OPERATIONS
Nine Months Ended September 30,
|
Year Ended December 31,
|
|||||||||||||||
2009
(unaudited)
|
2008
(unaudited)
|
2008
(audited)
|
2007
(audited)
|
|||||||||||||
REVENUES
|
$ | 76,983 | $ | 89,523 | $ | 125,968 | $ | — | ||||||||
COSTS
AND EXPENSES:
|
||||||||||||||||
Research
and development
|
5,137,955 | 12,929,184 | 14,526,619 | 17,427,804 | ||||||||||||
General
and administrative
|
1,528,826 | 1,602,120 | 2,190,366 | 2,866,383 | ||||||||||||
Total
costs and expenses
|
6,666,781 | 14,531,304 | 16,716,985 | 20,294,187 | ||||||||||||
LOSS
FROM OPERATIONS
|
(6,589,798 | ) | (14,441,781 | ) | (16,591,017 | ) | (20,294,187 | ) | ||||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
Interest
income
|
1,012 | 122,556 | 130,611 | 729,922 | ||||||||||||
Loss
on derivatives
|
(2,830,274 | ) | — | — | — | |||||||||||
Miscellaneous
|
6,233 | 6,750 | 9,000 | 7,130 | ||||||||||||
Total
other income (expense)
|
(2,823,029 | ) | 129,306 | 139,611 | 737,052 | |||||||||||
NET
LOSS
|
(9,412,827 | ) | (14,312,475 | ) | (16,451,406 | ) | (19,557,135 | ) | ||||||||
PREFERRED
STOCK DIVIDENDS
|
(2,495,902 | ) | (1,463,715 | ) | (2,092,102 | ) | (1,161,120 | ) | ||||||||
PREFERRED
STOCK DEEMED DIVIDENDS
|
(714,031 | ) | (4,417,315 | ) | (4,417,315 | ) | (9,003,083 | ) | ||||||||
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | (12,622,760 | ) | $ | (20,193,505 | ) | $ | (22,960,823 | ) | $ | (29,721,338 | ) | ||||
BASIC
AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON SHARE
|
$ | (0.27 | ) | $ | (0.50 | ) | $ | (0.56 | ) | $ | (0.76 | ) | ||||
SHARES
USED IN COMPUTING BASIC AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS PER COMMON SHARE
|
45,944,799 | 40,132,085 | 41,100,883 | 39,247,532 |
See
notes to financial statements.
F-4
NOVELOS
THERAPEUTICS, INC.
STATEMENTS
OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIENCY
REDEEMABLE
PREFERRED STOCK
Series B, D and E Convertible
Preferred Stock
|
Common Stock
|
Series A Cumulative
Convertible
Preferred Stock
|
Series C Cumulative
Convertible
Preferred Stock
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Stockholders’
Equity
(Deficiency)
|
||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||
BALANCE
AT JANUARY 1, 2007
|
— | $ | — | 39,235,272 | $ | 392 | 3,264 | $ | — | — | $ | — | $ | 34,294,154 | $ | (23,684,612 | ) | $ | 10,609,934 | |||||||||||||||||||||||||
Exercise
of stock options
|
— | — | 25,000 | — | — | — | — | — | 250 | — | 250 | |||||||||||||||||||||||||||||||||
Compensation
expense associated with options issued to employees
|
— | — | — | — | — | — | — | — | 343,233 | — | 343,233 | |||||||||||||||||||||||||||||||||
Compensation
expense associated with options issued to non-employees
|
— | — | — | — | — | — | — | — | 160,057 | — | 160,057 | |||||||||||||||||||||||||||||||||
Issuance
of Series B redeemable convertible preferred stock and warrants, net of
issuance costs of $1,306,949
|
300 | 17,743,051 | — | — | — | — | — | — | 3,774,385 | — | 3,774,385 | |||||||||||||||||||||||||||||||||
Beneficial
conversion feature on Series B redeemable convertible preferred stock
|
— | (7,824,385 | ) | — | — | — | — | — | — | 7,824,385 | — | 7,824,385 | ||||||||||||||||||||||||||||||||
Deemed
dividend related to the accretion of beneficial conversion feature on
Series B redeemable convertible preferred stock
|
— | — | — | — | — | — | — | — | (7,824,385 | ) | — | (7,824,385 | ) | |||||||||||||||||||||||||||||||
Retirement
of Series A preferred stock and issuance of Series C convertible preferred
stock
|
— | — | — | — | (3,264 | ) | — | 272 | — | — | — | — | ||||||||||||||||||||||||||||||||
Issuance
of common stock purchase warrants in connection with exchange of preferred
stock
|
— | — | — | — | — | — | — | — | 1,138,698 | — | 1,138,698 | |||||||||||||||||||||||||||||||||
Deemed
dividend recorded in connection with exchange of Series A for Series C
convertible preferred stock
|
— | — | — | — | — | — | — | — | (1,178,698 | ) | — | (1,178,698 | ) | |||||||||||||||||||||||||||||||
Dividends
paid on preferred stock
|
— | — | — | — | — | — | — | — | (823,620 | ) | — | (823,620 | ) | |||||||||||||||||||||||||||||||
Dividends
accrued on preferred stock
|
— | — | — | — | — | — | — | — | (337,500 | ) | — | (337,500 | ) | |||||||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | — | — | (19,557,135 | ) | (19,557,135 | ) | |||||||||||||||||||||||||||||||
BALANCE
AT DECEMBER 31, 2007
|
300 | 9,918,666 | 39,260,272 | 392 | — | — | 272 | — | 37,370,959 | (43,241,747 | ) | (5,870,396 | ) | |||||||||||||||||||||||||||||||
Exercise
of stock options
|
— | — | 100,000 | 1 | — | — | — | — | 999 | — | 1,000 | |||||||||||||||||||||||||||||||||
Compensation
expense associated with options issued to employees
|
— | — | — | — | — | — | — | — | 395,194 | — | 395,194 | |||||||||||||||||||||||||||||||||
Compensation
expense associated with options issued to non-employees
|
— | — | — | — | — | — | — | — | 58,133 | — | 58,133 | |||||||||||||||||||||||||||||||||
Issuance
of common stock in a private placement
|
4,615,384 | 47 | 2,986,691 | — | 2,986,738 | |||||||||||||||||||||||||||||||||||||||
Issuance
of Series D redeemable convertible preferred stock and warrants, net of
issuance costs of $205,328
|
113.5 | 4,167,080 | — | — | — | — | — | — | 1,302,592 | — | 1,302,592 | |||||||||||||||||||||||||||||||||
Adjustment
to record the carrying value of Series D redeemable convertible preferred
stock at market value on the date of sale
|
— | (181,646 | ) | — | — | — | — | — | — | 181,646 | — | 181,646 | ||||||||||||||||||||||||||||||||
Fair
value of reduction in conversion and exercise price of Series B redeemable
convertible preferred stock and warrants
|
— | 3,876,912 | — | — | — | — | — | — | 722,049 | — | 722,049 | |||||||||||||||||||||||||||||||||
Accretion
of deemed dividend associated with the reduction of conversion and
exercise prices on Series B redeemable convertible preferred stock and
warrants
|
— | (3,876,912 | ) | — | — | — | — | — | — | (722,049 | ) | — | (722,049 | ) | ||||||||||||||||||||||||||||||
Dividends
paid on preferred stock
|
— | — | — | — | — | — | — | — | (402,780 | ) | — | (402,780 | ) | |||||||||||||||||||||||||||||||
Dividends
accrued on preferred stock
|
— | — | — | — | — | — | — | — | (1,689,322 | ) | — | (1,689,322 | ) | |||||||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | — | — | (16,451,406 | ) | (16,451,406 | ) | |||||||||||||||||||||||||||||||
BALANCE
AT DECEMBER 31, 2008
|
413.5 | 13,904,100 | 43,975,656 | 440 | — | — | 272 | — | 40,204,112 | (59,693,153 | ) | (19,488,601 | ) | |||||||||||||||||||||||||||||||
Conversion
of Series C convertible preferred stock and accumulated dividends
|
— | — | 876,253 | 9 | — | — | (40 | ) | — | 89,557 | — | 89,566 | ||||||||||||||||||||||||||||||||
Conversion
of Series E convertible preferred stock and accumulated dividends
|
(39.04349375 | ) | (1,290,865 | ) | 3,137,119 | 31 | — | — | — | — | 1,377,790 | — | 1,377,821 | |||||||||||||||||||||||||||||||
Cashless
exercise of warrants
|
— | — | 79,028 | 1 | — | — | — | — | 115,282 | — | 115,283 | |||||||||||||||||||||||||||||||||
Issuance
of common stock in exchange for warrants
|
— | — | 2,084,308 | 21 | — | — | — | — | 1,625,739 | — | 1,625,760 | |||||||||||||||||||||||||||||||||
Compensation
expense associated with options issued to employees
|
— | — | — | — | — | — | — | — | 325,949 | — | 325,949 | |||||||||||||||||||||||||||||||||
Compensation
expense associated with options issued to non-employees
|
— | — | — | — | — | — | — | — | 177,212 | — | 177,212 | |||||||||||||||||||||||||||||||||
Issuance
of Series E redeemable convertible preferred stock and warrants, net of
issuance costs of $795,469
|
200 | 6,297,323 | — | — | — | — | — | — | 2,907,208 | — | 2,907,208 | |||||||||||||||||||||||||||||||||
Issuance
of common stock and warrants in a private placement, net of issuance costs
of $50,899
|
— | — | 5,303,030 | 53 | — | — | — | — | 3,449,048 | — | 3,449,101 | |||||||||||||||||||||||||||||||||
Adjustment
to record the carrying value of Series E redeemable convertible preferred
stock at market value on the date of sale
|
— | (125,892 | ) | — | — | — | — | — | — | 125,892 | — | 125,892 | ||||||||||||||||||||||||||||||||
Issuance
of Series E redeemable convertible preferred stock in payment of
accumulated dividends
|
31.942875 | 1,597,144 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Fair
value of the extension of expiration date of warrants
|
— | — | — | — | — | — | — | — | 839,923 | — | 839,923 | |||||||||||||||||||||||||||||||||
Accretion
of deemed dividend associated with the extension of expiration date of
warrants
|
— | — | — | — | — | — | — | — | (839,923 | ) | — | (839,923 | ) | |||||||||||||||||||||||||||||||
Dividends
accrued on preferred stock
|
— | — | — | — | — | — | — | — | (2,495,902 | ) | — | (2,495,902 | ) | |||||||||||||||||||||||||||||||
Change
in accounting principle
|
— | — | — | — | — | — | — | — | (6,893,316 | ) | 5,894,371 | (998,945 | ) | |||||||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | — | — | (9,412,827 | ) | (9,412,827 | ) | |||||||||||||||||||||||||||||||
BALANCE
AT SEPTEMBER 30, 2009 (UNAUDITED)
|
606.39938125 | $ | 20,381,810 | 55,455,394 | $ | 555 | — | $ | — | 232 | $ | — | $ | 41,008,571 | $ | (63,211,609 | ) | $ | (22,202,483 | ) |
See
notes to financial statements.
F-5
NOVELOS
THERAPEUTICS, INC.
STATEMENTS
OF CASH FLOWS
Nine Months Ended September 30,
|
Year Ended December 31,
|
|||||||||||||||
2009
(unaudited)
|
2008
(unaudited)
|
2008
(audited)
|
2007
(audited)
|
|||||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||
Net
loss
|
$ | (9,412,827 | ) | $ | (14,312,475 | ) | $ | (16,451,406 | ) | $ | (19,557,135 | ) | ||||
Adjustments
to reconcile net loss to cash used in operating activities:
|
||||||||||||||||
Depreciation
and amortization
|
22,423 | 11,955 | 16,889 | 15,367 | ||||||||||||
Loss
on disposal of fixed assets
|
— | 6,472 | 6,472 | — | ||||||||||||
Stock-based
compensation
|
503,161 | 330,296 | 453,327 | 503,290 | ||||||||||||
Loss
on derivatives
|
2,830,274 | — | — | — | ||||||||||||
Changes
in:
|
||||||||||||||||
Prepaid
expenses and other current assets
|
(230,184 | ) | (62,934 | ) | 3,496 | 161,714 | ||||||||||
Accounts
payable and accrued liabilities
|
(1,965,443 | ) | (751,979 | ) | (1,718,566 | ) | 5,284,437 | |||||||||
Accrued
compensation
|
(53,375 | ) | (102,208 | ) | (108,773 | ) | 124,028 | |||||||||
Deferred
revenue
|
(24,999 | ) | 475,000 | 466,666 | — | |||||||||||
Cash
used in operating activities
|
(8,330,970 | ) | (14,405,873 | ) | (17,331,895 | ) | (13,468,299 | ) | ||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||
Purchases
of fixed assets
|
(18,000 | ) | (31,003 | ) | (49,003 | ) | (24,366 | ) | ||||||||
Change
in restricted cash
|
— | 1,184,702 | 1,184,702 | 470,549 | ||||||||||||
Deposits
|
— | — | — | (4,475 | ) | |||||||||||
Cash
provided by (used in) investing activities
|
(18,000 | ) | 1,153,699 | 1,135,699 | 441,708 | |||||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||
Proceeds
from issuance of common stock, net
|
3,449,101 | 2,986,738 | 2,986,738 | — | ||||||||||||
Proceeds
from issuance of Series B convertible preferred stock and warrants, net
|
— | — | — | 13,693,051 | ||||||||||||
Proceeds
from issuance of Series D convertible preferred stock and warrants, net
|
— | 5,469,672 | 5,469,672 | — | ||||||||||||
Proceeds
from issuance of Series E convertible preferred stock and warrants, net
|
9,204,531 | — | — | — | ||||||||||||
Dividends
paid to preferred stockholders
|
— | (740,280 | ) | (740,280 | ) | (823,620 | ) | |||||||||
Payment
to preferred stockholders in connection with exchange of shares (1)
|
— | — | — | (40,000 | ) | |||||||||||
Proceeds
from exercise of stock option
|
— | 1,000 | 1,000 | 250 | ||||||||||||
Cash
provided by financing activities
|
12,653,632 | 7,717,130 | 7,717,130 | 12,829,681 | ||||||||||||
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
4,304,662 | (5,535,044 | ) | (8,479,066 | ) | (196,910 | ) | |||||||||
CASH
AND EQUIVALENTS AT BEGINNING OF YEAR
|
1,262,452 | 9,741,518 | 9,741,518 | 9,938,428 | ||||||||||||
CASH
AND EQUIVALENTS AT END OF PERIOD
|
$ | 5,567,114 | $ | 4,206,474 | $ | 1,262,452 | $ | 9,741,518 | ||||||||
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||||||||||
Deemed
dividends on preferred stock
|
$ | 714,031 | $ | 4,417,315 | $ | 4,417,315 | $ | 8,963,083 | ||||||||
Dividends
accrued but not paid to preferred stockholders
|
$ | 2,294,321 | $ | 1,060,935 | $ | 1,689,322 | $ | 337,500 | ||||||||
Dividends
paid to preferred shareholders in shares of Series E preferred stock
|
$ | 1,597,144 | $ | — | $ | — | $ | — | ||||||||
Relative
fair value of warrants issued to stockholders
|
$ | 3,659,692 | $ | 1,302,592 | $ | 1,302,592 | $ | 3,774,385 | ||||||||
Issuance
of common stock in exchange for tender of warrants
|
$ | 1,625,760 | $ | — | $ | — | $ | — | ||||||||
Exchange
of Series B for Series D preferred stock
|
$ | — | $ | 9,918,666 | $ | 9,918,666 | $ | — | ||||||||
Exchange
of Series D for Series E preferred stock
|
$ | 13,904,100 | $ | — | $ | — | $ | — | ||||||||
Issuance
of warrants to placement agents
|
$ | — | $ | — | $ | — | $ | 768,621 | ||||||||
Conversion
of Series E preferred stock and accumulated dividends into common stock
|
$ | 2,039,130 | $ | — | $ | — | $ | — | ||||||||
Conversion
of Series C preferred stock and accumulated dividends into common stock
|
$ | 569,566 | $ | — | $ | — | $ | — |
(1)
Included as a deemed dividend in the Statement of Operations.
See
notes to financial statements.
F-6
NOVELOS
THERAPEUTICS, INC.
NOTES
TO FINANCIAL STATEMENTS
(ALL
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008,
AND
SUBSEQUENT TO SEPTEMBER 30, 2009, IS UNAUDITED)
1.
NATURE OF BUSINESS, ORGANIZATION AND GOING CONCERN
Novelos
Therapeutics, Inc. (‘‘Novelos’’ or the ‘‘Company’’) is a biopharmaceutical
company, established in 1996, commercializing oxidized glutathione-based
compounds for the treatment of cancer and hepatitis. Novelos owns
exclusive worldwide intellectual property rights (excluding Russia and other
states of the former Soviet Union (the “Russian Territory”), but including
Estonia, Latvia and Lithuania) related to certain clinical compounds and other
pre-clinical compounds based on oxidized glutathione.
The
Company is subject to a number of risks similar to those of other small
biopharmaceutical companies. Principal among these risks are dependence on key
individuals, competition from substitute products and larger companies, the
successful development and marketing of its products in a highly regulated
environment and the need to obtain additional financing necessary to fund future
operations.
These
financial statements have been prepared on the basis that the Company will
continue as a going concern. The Company is devoting substantially all of
its efforts toward the research and development of its products and has incurred
operating losses since inception. The process of developing products will
continue to require significant research and development, non-clinical testing,
clinical trials and regulatory approval. The Company expects that these
activities, together with general and administrative costs, will result in
continuing operating losses for the foreseeable future. The primary endpoint of
the Company’s Phase 3 clinical trial for NOV-002 in non-small cell lung cancer
is increased median overall survival, to be measured following the occurrence of
725 events (patient deaths). On
January 7, 2010, the Company announced that the 725th
event had been reached in this trial, thus triggering the steps towards the
pre-specified analysis according to the trial’s statistical analysis
plan. The Company anticipates that the top-line results from this
trial will be available later in the first quarter 2010. On
August 25, 2009, the Company entered into a Securities Purchase Agreement (the
“August 2009 Purchase Agreement”) with Purdue Pharma L.P. (“Purdue”)
contemplating the issuance and sale at two or more closings of up to 13,636,364
shares of Novelos common stock and warrants to purchase approximately 4,772,728
shares of Novelos common stock at an exercise price of $0.66 per share, expiring
December 31, 2015, for an aggregate purchase price of $9,000,000. At the
initial closing on August 25, 2009, the Company sold Purdue 5,303,030 shares of
common stock and a warrant to purchase 1,856,062 shares of common stock for
gross proceeds of $3,500,000. At the final closing under the August 2009
Purchase Agreement on November 10, 2009, the Company sold Purdue 8,333,334
shares of Novelos common stock and a warrant to purchase 2,916,668 shares of
Novelos common stock for gross proceeds of $5,500,000. The August 2009
Purchase Agreement required the Company to adopt an expanded development and
regulatory plan for NOV-002 (the “Plan”), which contemplates substantial
expenditures through mid-2010 in addition to clinical development expenditures
previously contemplated for the completion of the Phase 3 trial. The
Company is required to use proceeds from the sale of securities under the August
2009 Purchase Agreement for the expenditures identified in the Plan. The
Company believes that the available funds at September 30, 2009, plus the
proceeds from the final closing under the August 2009 Purchase Agreement will
allow it to operate beyond the conclusion of the Phase 3 trial and into the
third quarter of 2010.
The
completion of the Phase 3 clinical trial is likely to significantly affect the
Company’s ability to finance continued operations beyond the third quarter of
2010. If the results are favorable, the Company believes it will be
able to obtain adequate funding to pursue its strategic objectives and clinical
development programs longer term. If the results of the Phase 3 clinical
trial are not favorable, the Company may be unable to obtain additional funding,
and may be required to scale back administrative activities and clinical
development programs, or cease its operations entirely. Furthermore,
adverse conditions in the capital markets globally may impair the Company’s
ability to obtain funding in a timely manner.
The
accompanying unaudited financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation of these financial statements have been
included. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Interim results are
not necessarily indicative of results to be expected for other quarterly periods
or for the entire year ending December 31, 2009.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying financial statements reflect the application of certain accounting
policies, as described in this note and elsewhere in the accompanying notes to
the financial statements.
Use of Estimates
— The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses and disclosure of contingent assets and
liabilities. Management’s estimates are based primarily on relevant
historical experience and other assumptions that management believes to be
reasonable. Estimates include those for unbilled contract service fees
such as amounts due to clinical research organizations, clinical investigators
and contract manufacturers. Actual results could differ from those
estimates.
F-7
Cash
Equivalents — The Company considers all short-term investments purchased
with original maturities of three months or less to be cash equivalents.
Restricted Cash
— Restricted cash at December 31, 2007 consisted of cash pledged as
security on a letter of credit agreement with a bank. The letter of credit
expired in 2008.
Fixed Assets
— Property and equipment are stated at cost. Depreciation on property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets, which range from three to five years. Leasehold
improvements are depreciated over the lesser of the estimated useful lives of
the assets or the remaining lease term.
Impairment of
Long-Lived
Assets — Whenever events or circumstances change, the Company assesses
whether there has been an impairment in the value of long-lived assets by
determining whether projected undiscounted cash flows generated by the
applicable asset exceed its net book value as of the assessment date. There were
no impairments of the Company’s assets at the end of each period presented.
Stock-based
Compensation — The Company applies the
fair-value recognition provisions of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation, Stock
Compensation. The Company accounts for share-based payments
granted to non-employees in accordance with the guidance of FASB ASC Topic 505,
Equity. See
Note 7 for a further description of the Company’s accounting policies related to
stock-based compensation.
Revenue
Recognition — Revenue is recognized when persuasive evidence of an
arrangement exists, the price is fixed and determinable, delivery has occurred,
and there is reasonable assurance of collection. Upfront payments received in
connection with technology license or collaboration agreements are recognized
over the estimated term of the related agreement. Milestone payments received in
connection with license or collaboration agreements are recognized upon
completion of the applicable milestones, provided that there are no further
delivery obligations associated with the milestone. Royalty revenue will be
recognized upon the receipt of royalty reports from third parties.
Research and
Development — Research and development costs are expensed as incurred.
Income
Taxes — The Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between the financial statement and
tax basis of assets and liabilities and net operating loss and credit
carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when it
is more likely than not that some portion of the deferred tax assets will not be
realized.
The
Company adopted the guidance of FASB ASC Topic 740 related to the Accounting for Uncertainty in Income
Taxes on the first day of its 2007 fiscal year. The implementation
had no effect on the Company’s reported financial position or results of
operations in the year ended December 31, 2007.
Comprehensive
Income (Loss) — The Company had no components of comprehensive income
other than net loss in all of the periods presented.
Fair Value of
Financial Instruments — The guidance under FASB ASC Topic 825, Financial Instruments,
requires disclosure of the fair value of certain financial instruments.
The Company’s financial instruments consist of cash equivalents, accounts
payable, accrued expenses and redeemable preferred stock. The estimated
fair value of the redeemable preferred stock, determined on an as-converted
basis, was $14,950,000 and $8,850,000 at December 31, 2008 and 2007,
respectively. The estimated fair value of the remaining financial instruments
approximates their carrying value due to their short-term nature.
Concentration of
Credit Risk — Financial instruments that subject the Company to credit
risk consist of cash and equivalents on deposit with financial
institutions. The Company’s excess cash is invested on an overnight basis
in securities that are fully collateralized. When funds are not invested
overnight, cash is on deposit in a non-interest-bearing transaction account that
is fully covered by FDIC deposit insurance until June 30, 2010.
Derivative
Instruments — The Company generally does not
use derivative instruments to hedge exposures to cash flow or market risks;
however, starting January 1, 2009, certain warrants to purchase common stock
that do not meet the requirements for classification as equity, in accordance
with the Derivatives and Hedging Topic of the FASB ASC, are classified as
liabilities. In such instances, net-cash settlement is assumed for
financial reporting purposes, even when the terms of the underlying contracts do
not provide for a net-cash settlement. These warrants are considered derivative
instruments since the agreements contain “down-round” provisions whereby the
number of shares for which the warrants are exercisable and/or the exercise
price of the warrants is subject to change in the event of certain issuances of
stock at prices below the then-effective exercise price of the warrants.
The number of such warrants was 14,003,319 at January 1, 2009 and 8,012,180 at
September 30, 2009. The primary underlying risk exposure pertaining to the
warrants is the change in fair value of the underlying common stock. Such
financial instruments are initially recorded at fair value, or relative fair
value when issued with other instruments, with subsequent changes in fair value
recorded as a component of gain or loss on derivatives in each reporting period.
If these instruments subsequently meet the requirements for equity
classification, the Company reclassifies the fair value to equity. At
September 30, 2009, these warrants represent the only outstanding derivative
instruments issued or held by the Company.
F-8
New Accounting
Pronouncements — In June 2009, the FASB issued FASB ASC 105, Generally Accepted Accounting
Principles , which establishes the FASB Accounting Standards Codification
(“ASC”) as the sole source of authoritative generally accepted accounting
principles (“GAAP”). Pursuant to the provisions of FASB ASC 105, the Company has
updated references to GAAP in the accompanying financial statements. The
adoption of FASB ASC 105 did not impact the Company’s financial position or
results of operations.
In May
2009, the FASB issued new authoritative guidance now codified as FASB ASC Topic
855 related to subsequent events, which establishes general standards of
accounting for and disclosures of subsequent events that occur after the balance
sheet date but prior to the issuance of financial statements. The guidance
requires additional disclosure regarding the date through which subsequent
events have been evaluated by the entity as well as whether that date is the
date the financial statements were issued. This guidance became effective for
the Company’s financial statements as of June 30, 2009. The Company has
evaluated subsequent events through January 25, 2010.
In
December 2007, the FASB issued new authoritative guidance now codified
as FASB ASC Topic 808, Collaborative
Arrangements. The new guidance defines collaborative arrangements
and establishes reporting requirements for transactions between participants in
a collaborative arrangement and between participants in the arrangement and
third parties. The new guidance became effective for fiscal years beginning
after December 15, 2008 and had no effect on the Company’s reported financial
position or results of operations in the nine months ended September 30, 2009.
In June
2007, the FASB issued new authoritative guidance now codified as FASB ASC Topic
730, Research and
Development. The new guidance requires that nonrefundable advance
payments for goods or services used or rendered for future research and
development activities be deferred and capitalized and subsequently recognized
as an expense as the goods are delivered or the related services are
performed. The guidance became effective for fiscal years beginning after
December 15, 2007 and interim periods within those fiscal years with no earlier
application permitted. and had no effect on the Company’s reported
financial position or results of operations in the year ended December 31, 2008.
In
February 2007, the FASB issued new authoritative guidance now codified as FASB
ASC Topic 825, Financial
Instruments. The new guidance permits entities to choose to measure
many financial instruments and certain other items at fair value and became
effective for financial statements issued for fiscal years beginning after
November 15, 2007. Adoption of this guidance had no effect on the
Company’s reported financial position or results of operations in the year ended
December 31, 2008.
Change in
Accounting Principle — Effective January 1, 2009, the Company adopted the
guidance of FASB ASC 815-40, Derivatives and Hedging,
which establishes a framework for determining whether certain freestanding and
embedded instruments are indexed to a company’s own stock for purposes of
evaluation of the accounting for such instruments under existing accounting
literature. As a result of this adoption, certain warrants that were
previously determined to be indexed to the Company’s common stock upon issuance
were determined not to be indexed to the Company’s common stock because they
include ‘down-round’ anti-dilution provisions whereby the number of shares for
which the warrants are exercisable and/or the exercise price of the warrants is
subject to change in the event of certain issuances of stock at prices below the
then-effective exercise price of the warrants. The fair value of the warrants at
the dates of issuance totaling $6,893,000 was initially recorded as a component
of additional paid-in capital. Upon adoption of this guidance, in the first
quarter of 2009, the Company recorded a decrease to the opening balance of
additional-paid-in capital of $6,893,000 and recorded a decrease to accumulated
deficit totaling $5,894,000, representing the decrease in the fair value of the
warrants from the date of issuance to December 31, 2008. The increase in
fair value of the warrants $2,830,000 during the nine months ended September 30,
2009 has been included as a component of other income in the accompanying
statement of operations for the respective period. Certain of the warrants
that had been recorded as a derivative liability were exchanged for shares of
the Company’s common stock during the nine months ended September 30, 2009.
See Note 6 for a description of that transaction. The fair value of the warrants
at September 30, 2009 of $2,088,000 is included as a current liability in the
accompanying balance sheet as of that date.
3.
FIXED ASSETS
Fixed
assets consisted of the following at December 31:
2008
|
2007
|
|||||||
Office
and computer equipment
|
$ | 73,261 | $ | 51,652 | ||||
Computer
software
|
25,896 | 7,896 | ||||||
Leasehold
improvements
|
4,095 | 4,095 | ||||||
Total
fixed assets
|
103,252 | 63,643 | ||||||
Less
accumulated depreciation and amortization
|
(44,801 | ) | (30,834 | ) | ||||
Fixed
assets, net
|
$ | 58,451 | $ | 32,809 |
4.
FAIR VALUES OF ASSETS AND LIABILITIES
In
accordance with Fair Value Measurements and Disclosures Topic of the FASB ASC,
the Company groups its financial assets and financial liabilities generally
measured at fair value in three levels, based on the markets in which the assets
and liabilities are traded and the reliability of the assumptions used to
determine fair value.
|
·
|
Level
1: Input prices quoted in an active market for identical financial assets
or liabilities.
|
F-9
|
·
|
Level
2: Inputs other than prices quoted in Level 1, such as prices quoted for
similar financial assets and liabilities in active markets, prices for
identical assets and liabilities in markets that are not active or other
inputs that are observable or can be corroborated by observable market
data.
|
|
·
|
Level
3: Input prices that are significant to the fair value of the financial
assets or liabilities which are not observable or supported by an active
market.
|
Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
September 30, 2009
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Warrants
|
$ | - | $ | 2,088,000 | $ | - | $ | 2,088,000 |
The fair
value of warrants has been estimated using the Black-Scholes option pricing
model based on the closing price of the common stock at the valuation date,
estimated volatility of 90%, terms ranging from six to seventeen months and
risk-free interest rates ranging from 0.18% to 0.68%.
5.
|
COLLABORATION
AGREEMENTS
|
2007
Collaboration Agreement with Lee’s Pharmaceutical (HK) Ltd.
In
December 2007 the Company entered into a Collaboration Agreement with Lee’s
Pharmaceutical (HK) Ltd. (“Lee’s Pharm”). Pursuant to this agreement,
Lee’s Pharm obtained an exclusive license to develop, manufacture and
commercialize NOV-002 and NOV-205 in China, Hong Kong, Taiwan and Macau (the
“Chinese Territory”). Under the terms of the agreement the Company
received a license fee of $500,000 in March 2008 and is entitled to receive up
to $1,700,000 in future milestone payments upon the completion of development
and marketing milestones by Lee’s Pharm. This initial $500,000 payment
received is being amortized over the estimated term of this agreement, 15
years. Accordingly, $33,334 of license revenue was recognized in the
year ended December 31, 2008 and $25,000 license revenue was recognized in the
nine months ended September 30, 2009.
The
Company will receive royalty payments of 20-25% of net sales of NOV-002 in the
Chinese Territory and will receive royalty payments of 12-15% of net sales of
NOV-205 in the Chinese Territory. Lee’s Pharm will also reimburse the Company
for the manufacturing cost of pharmaceutical products provided to Lee’s Pharm in
connection with the agreement. Lee’s Pharm has committed to spend a
minimum amount on development in the first four years of the agreement. The
agreement expires upon the expiration of the last patent covering any of the
licensed products, or twelve years from the date of the first commercial sale in
China, whichever occurs later.
2009
Collaboration Agreement with Mundipharma
On
February 11, 2009, Novelos entered into a collaboration agreement (the
“Collaboration Agreement”) with Mundipharma International Corporation Limited
(“Mundipharma”) to develop, manufacture and commercialize, on an exclusive
basis, Licensed Products (as defined in the Collaboration Agreement), which
includes the Company’s lead compound, NOV-002, in Europe (other than the Russian
Territory), Asia (other than the Chinese Territory) and Australia (collectively
referred to as the “Mundipharma Territory”). Mundipharma is an independent
associated company of Purdue Pharma L.P. (“Purdue”).
Under the
Collaboration Agreement, Mundipharma received an exclusive license to develop,
manufacture, market, sell or otherwise distribute the Licensed Products and
improvements thereon in the Mundipharma Territory. Novelos is responsible
for the cost and execution of development, regulatory submissions and
commercialization of NOV-002 outside the Mundipharma Territory, and Mundipharma
is responsible for the cost and execution of certain development activities, all
regulatory submissions and all commercialization within the Mundipharma
Territory. In the unlikely event that Mundipharma is required to conduct
an additional Phase 3 clinical trial in first-line advanced-stage non-small cell
lung cancer in order to gain regulatory approval in Europe, Mundipharma will be
entitled to recover the full cost of such trial by reducing milestone, fixed
sales-based payments and royalty payments to Novelos by up to 50% of the
payments owed until Mundipharma recovers the full costs of such trial. In
order for Mundipharma or Novelos to access the other party’s data or
intellectual property related to Independent Trials (as defined in the
Collaboration Agreement), the accessing party must pay the sponsoring party 50%
of the cost of such trial.
The
launch of Licensed Products, including initiation of regulatory and pricing
approvals, and subsequent commercial efforts to market and sell Licensed
Products in each country in the Mundipharma Territory, will be determined by
Mundipharma based on its assessment of the commercial viability of the Licensed
Products, the regulatory environment and other factors. Novelos has no assurance
that it will receive any amount of the launch payments, fixed sales-based
payments or royalties described below.
F-10
Mundipharma
will pay Novelos $2.5 million upon the launch of NOV-002 in each country, up to
a maximum of $25 million. In addition, Mundipharma will make fixed sales-based
payments up to an aggregate of $60 million upon the achievement of certain
annual sales levels payable once the annual net sales exceed the specified
thresholds. Mundipharma will also pay as royalties to Novelos, during the
term of the Collaboration Agreement, a double-digit percentage on net sales of
Licensed Products, based upon a four-tier royalty schedule, in countries within
the Mundipharma Territory where Novelos held patents on the licensed technology
as of the effective date of the agreement. Royalties in countries in the
Mundipharma Territory where Novelos did not hold patents as of the effective
date will be paid at 50% of the royalty rates in countries where patents were
held. The royalties will be calculated based on the incremental net sales in the
respective royalty tiers and shall be due on net sales in each country in the
Territory where patents are held until the last patent expires in the respective
country. In countries in the Munidpharma Territory where Novelos does not
hold patents as of the effective date of the Collaboration Agreement, royalties
will be due until the earlier of 15 years from the date of the Collaboration
Agreement or the introduction of a generic in the respective country resulting
in a 20% drop in Mundipharma’s market share in such country.
For
countries in which patents are held, the Collaboration Agreement expires on a
country-by-country basis within the MundipharmaTerritory on the earlier of (1)
expiration of the last applicable Novelos patent within the country or (2) the
determination that any patents within the country are invalid, obvious or
otherwise unenforceable. For countries in which no patents are held, the
Collaboration Agreement expires the earlier of 15 years from its effective date
or upon generic product competition in the country resulting in a 20% drop in
Mundipharma’s market share. Novelos may terminate the Collaboration Agreement
upon breach or default by Mundipharma. Mundipharma may terminate the
Collaboration Agreement upon breach or default, filing of voluntary or
involuntary bankruptcy by Novelos, the termination of certain agreements with
companies associated with the originators of the licensed technology, or 30-day
notice for no reason. If any regulatory approval within the Territory is
suspended as a result of issues related to the safety of the Licensed Products,
then Mundipharma’s obligations under the Collaboration Agreement will be
suspended until the regulatory approval is reinstated. If that
reinstatement does not occur within 12 months of the suspension, then
Mundipharma may terminate the Collaboration Agreement.
Concurrent
with the execution of the Collaboration Agreement, Novelos completed a private
placement of preferred stock and warrants to Purdue, an independent associated
company of Mundipharma. See ‘Series E Preferred Stock Private Placement’ below.
6.
STOCKHOLDERS’ EQUITY (DEFICIENCY)
2005 Issuance of
Common Stock –
From
May 27, 2005 through August 9, 2005, the Company completed a private offering of
securities, exempt from registration under the Securities Act of 1933, in which
it sold to accredited investors 4,000,000 shares of common stock and issued
2,000,000 common stock warrants (initially exercisable at $2.25 per share) for
net cash proceeds of approximately $3,715,000 (net of cash issuance costs of
approximately $735,000) and conversion of debt and accrued interest of
$550,000. In connection with the private placement, the Company also
issued 125,000 shares of common stock to placement agents with a value of
approximately $156,000 and issued 340,000 common stock warrants to placement
agents and finders at an initial exercise price of $2.00 per share.
Pursuant to anti-dilution provisions, the number of warrants issued to
investors, placement agents and finders as well as the exercise price of the
warrants have changed. On August 11, 2008, warrants to purchase 6,923,028
shares of preferred stock at an exercise price of $0.65 per share expired
unexercised. These warrants were issued in 2005 to the purchasers of
shares of common stock. At September 30, 2009 and December 31, 2008,
warrants to purchase 762,810 and 1,046,143 shares, respectively, of common stock
at an exercise price of $0.65 per share held by placement agents remain
outstanding.
Issuance of
Series
A
Preferred
Stock –
On
September 30, 2005 and October 3, 2005, the Company sold, in a private
placement, a total of 3,200 shares of its Series A 8% Cumulative Convertible
Preferred Stock (“Series A Preferred Stock”) with a stated value of $1,000 per
share and 969,696 common stock warrants for net proceeds of $2,864,000, net of
issuance costs of $336,000. See “Issuance of Series C Preferred Stock”
below for a description of the exchange of Series A Preferred Stock that
occurred in May 2007. The warrants issued in connection with the sale of
Series A Preferred Stock had anti-dilution provisions that provided for
adjustments to the exercise price upon the occurrence of certain events.
Pursuant to these anti-dilution provisions the exercise price of the warrants
was subsequently adjusted and as of December 31, 2008, the warrants are
exercisable at $0.65 per share.
2006 Issuance of
Common Stock –
On March
7, 2006, the Company completed a private offering of securities, exempt from
registration under the Securities Act of 1933, in which it sold to accredited
investors 11,154,073 shares of common stock at $1.35 per share and warrants to
purchase 8,365,542 shares of its common stock exercisable at $2.50 per share for
net cash proceeds of approximately $13,847,000 (net of issuance costs of
approximately $1,211,000, including placement agent fees of approximately
$1,054,000). In connection with the private placement, the Company issued
669,244 common stock warrants (exercisable at $2.50 per share) to the placement
agents. Pursuant to anti-dilution provisions, as a result of subsequent
financings, as of December 31, 2008, the number of shares of common stock
issuable upon exercise of the warrants issued to investors and placement agents
was 11,267,480 and the exercise price was $2.00 per share. On
February 11, 2009, in connection with the Series E Preferred Stock Private
Placement described below, the number of warrants was increased to 12,379,848
and the exercise price was reduced to $1.82.
F-11
On August
21, 2009, the Company entered into exchange agreements with certain accredited
investors who held warrants, issued in the 2006 private placement, to purchase
6,947,728 shares of its common stock. Pursuant to the exchange agreements,
an aggregate of 2,084,308 shares of the Company’s common stock with a fair value
of $1,626,000 were issued in exchange for these warrants. The holders
agreed not to transfer or dispose of the shares of common stock until February
18, 2010. The warrants had been recorded as a derivative liability on the
Company’s balance sheet at their estimated fair value of $1,109,000 at the date
of exchange. The difference of $517,000 between the estimated fair value
of the warrants at the date of exchange and the common stock issued to settle
the derivative liability has been included as a component of the loss on
derivatives for the nine months ended September 30, 2009. Following the
exchange, warrants expiring on March 7, 2011 to purchase a total of 5,432,120
shares of common stock at $1.82 per share remained outstanding. Following
the August 2009 Private Placement, described below, the number of these
outstanding warrants was increased to 5,559,674 and the exercise price was
reduced to $1.78, as a result of anti-dilution provisions in the warrants.
Issuance of Series B
Preferred
Stock–
On May 2, 2007,
pursuant to a securities purchase agreement with accredited investors dated
April 12, 2007 (the “Purchase Agreement”), as amended May 2, 2007, the Company
sold 300 shares of a newly created series of preferred stock, designated “Series
B Convertible Preferred Stock”, with a stated value of $50,000 per share (the
“Series B Preferred Stock”), and issued warrants (the “Series B Warrants”) to
purchase 7,500,000 shares of common stock for an aggregate purchase price of
$15,000,000. The Series B Preferred Stock was initially convertible into
15,000,000 shares of common stock at $1.00 per share. During 2008, the
Company declared and paid $675,000 in dividends to Series B stockholders ($2,250
per share). During 2007, the Company declared dividends totaling $900,000
($3,000 per share) to Series B preferred stockholders; $562,500 ($1,875 per
share) of that amount was paid in cash during 2007. See “Issuance of
Series D Preferred Stock” below for a description of the exchange of Series B
Preferred Stock that occurred on April 11, 2008.
The
common stock purchase warrants issued to these purchasers are exercisable for an
aggregate of 7,500,000 shares of the Company’s common stock at an initial
exercise price of $1.25 per share and had an initial expiration date of May
2012. The warrant exercise price and/or number of warrants is subject to
adjustment only for stock dividends, stock splits or similar capital
reorganizations so that the rights of the warrant holders after such event will
be equivalent to the rights of warrant holders prior to such event. If
there is an effective registration statement covering the shares underlying the
warrants and the volume weighted average price (“VWAP”), as defined in the
warrant, of the Company’s common stock exceeds $2.50 for 20 consecutive trading
days, then on the 31st day
following the end of such period any remaining warrants for which a notice of
exercise was not delivered will no longer be exercisable and will be converted
into a right to receive $.01 per share. See “Issuance of Series D
Preferred Stock” and “Series E Preferred Stock Private Placement” below for
descriptions of amendments to the Series B Warrants that were executed on April
11, 2008 and February 11, 2009.
The
Company and these purchasers entered into a registration rights agreement in
connection with the closing of the sale of the Series B Preferred Stock.
The registration rights agreement was subsequently amended on April 11, 2008 and
on February 11, 2009. The agreement, as amended, requires the
Company to use its best efforts to keep a registration statement covering
12,000,000 shares of common stock continuously effective under the Securities
Act until the earlier of the date when all securities covered by the
registration statement have been sold or the second anniversary of the closing.
In the event the Company does not fulfill the requirements of the registration
rights agreement, the Company is required to pay to the investors liquidated
damages equal to 1.5% per month of the aggregate purchase price of the preferred
stock and warrants until the requirements have been met. The 12,000,000
shares of common stock were included on a registration statement that became
effective on April 28, 2008. The second post-effective amendment was
declared effective on April 27, 2009. As of September 30, 2009,
and through the date of this filing, the Company has not concluded that it is
probable that damages will become due; therefore, no accrual for damages has
been recorded
Upon the
closing of the Series B Preferred Stock financing the Company issued to
placement agents warrants to purchase a total of 900,000 shares of common stock
with the same terms as the warrants issued to the investors.
Issuance of
Series C
Preferred
Stock –
As a
condition to closing of the sale of Series B Preferred Stock described above,
the Company entered into an agreement to exchange and consent with the holders
of the Series A Preferred Stock providing for the exchange of all 3,264 shares
of Series A Preferred Stock for 272 shares of a new Series C convertible
preferred stock (“Series C Preferred Stock”), junior to the Series B Preferred
Stock as set forth in the Series C Preferred Stock Certificate of
Designations. The Series C Preferred Stock was initially convertible at
$1.00 per share into 3,264,000 shares of common stock. As part of the
exchange, the Company issued to the holders of the Series A Preferred Stock
warrants to purchase 1,333,333 shares of common stock expiring on May 2, 2012 at
a price of $1.25 per share; paid them a cash allowance to defray expenses
totaling $40,000; and paid them an amount of cash equal to unpaid dividends
accumulated through the date of the exchange. The fair value of the
warrants at the date of issuance calculated using the Black-Scholes valuation
method was $1,138,698. The valuation was based on estimated volatility of
80%, a discount rate of 4.55%, and a term of 5 years. The total of the
fair value of the warrants and the cash payment of $40,000 has been reflected as
a deemed dividend to preferred stockholders in the statement of
operations. Pursuant to the exchange agreement, the holders of the Series
C preferred stock retained registration and related rights substantially
identical to the rights that they had as holders of the Series A Preferred
Stock.
F-12
Terms
of the Series C Preferred Stock
The
Series C Preferred Stock had an annual dividend rate of 8% until October 1, 2008
and thereafter has an annual dividend rate of 20%. The dividends are
payable quarterly. Such dividends shall be paid only after all outstanding
dividends on the Series D Preferred Stock (with respect to the current fiscal
year and all prior fiscal years) shall have been paid to the holders of the
Series D Preferred Stock. During 2008, the Company paid $65,280 in dividends on
Series C Preferred Stock ($240 per share). During 2007, the Company
declared and paid dividends totaling $173,355 ($637 per share) to Series C
preferred stockholders. As of December 31, 2008, there were accumulated unpaid
dividends of $294,000 ($1,080 per share) on Series C Preferred Stock. The
conversion price is subject to adjustment for stock dividends, stock splits or
similar capital reorganizations. The Series C Preferred Stock does not
have voting rights and is redeemable only at the option of the Company upon 30
days’ notice at a 20% premium plus any accrued but unpaid dividends. In
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the Company’s affairs, the Series C Preferred stock will be treated as senior
to Novelos common stock. After all required payments are made to holders
of Series D Preferred Stock, the Series C Preferred stockholders will be
entitled to receive first, $12,000 per share and all accrued and unpaid
dividends. If, upon any winding up of the Company’s affairs, the Company’s
remaining assets available to pay the holders of Series C preferred stock are
not sufficient to permit the payment in full, then all of the Company’s assets
will be distributed to the holders of Series C preferred stock (and any
remaining holders of Series D preferred stock as may be required) on a pro rata
basis.
Adjustment
of Series C Preferred Stock Conversion Price
In
connection with the sale of Series D Preferred Stock described below, the
conversion price of the Series C Preferred Stock was reduced to $0.65 and became
convertible into 5,021,537 shares of common stock.
Conversions
of Series C Preferred Stock
During
the nine months ended September 30, 2009, 40 shares of the Company’s Series C
preferred stock, having an aggregate stated value of $480,000, and accumulated
dividends thereon were converted into 876,253 shares of the Company’s common
stock, leaving 232 shares of Series C Preferred Stock outstanding which are
convertible into 4,283,076 shares of common stock.
Issuance of Series D
Preferred Stock
–
On April
11, 2008, pursuant to a securities purchase agreement with accredited investors
dated March 26, 2008, as amended on April 9, 2008, the Company sold 113.5 shares
of Series D Convertible Preferred Stock, par value $0.00001 per share (the
“Series D Preferred Stock”) and issued warrants (the “Series D Warrants”) to
purchase 4,365,381 shares of its common stock for an aggregate purchase price of
$5,675,000 (the “Series D Financing”).
Exchange
of Series B Preferred Stock for Series D Preferred Stock
In
connection with the closing of the Series D Financing, the holders of the
Company’s Series B Preferred Stock exchanged all 300 of their shares of Series B
Preferred Stock for 300 shares of Series D Preferred Stock. Following the
exchange, no shares of Series B Preferred Stock are outstanding. The
rights and preferences of the Series D Preferred Stock were substantially the
same as the Series B Preferred Stock. However, the conversion price of the
Series D Preferred Stock was $0.65. In addition, the holders of Series B
Preferred Stock waived liquidated damages that had accrued from September 7,
2007 through the closing date as a result of the Company’s failure to register
for resale 100% of the shares of common stock underlying the Series B Preferred
Stock and warrants. As a result, during 2008, the Company recorded a
reduction of general and administrative expenses of $395,000 relating to the
reversal of estimated liquidated damages that had been accrued through the date
of the closing. The purchase agreement covering the issuance and sale of
the Series D Preferred Stock provided that the dividends that accrued on the
shares of Series B Preferred Stock from April 1, 2008 through the date of
exchange were to be paid, out of legally available funds, on June 30,
2008. As of June 30, 2008, September 30, 2008, and December 31, 2008 the
Company did not have legally available funds for the payment of dividends under
Delaware corporate law and therefore was not able to pay any dividends accrued
in respect of the preferred stock totaling $1,396,000 ($3,375 per share).
Terms of Series D Preferred Stock
The
shares of Series D Preferred Stock were convertible into shares of common stock
any time after issuance at the option of the holder at $0.65 per share of common
stock. If there is an effective registration statement covering the shares
of common stock underlying the Series D Preferred Stock and the VWAP, as defined
in the Series D Certificate of Designations, of the Company’s common stock
exceeds $2.00 for 20 consecutive trading days, then the outstanding Series D
Preferred Stock will automatically convert into common stock at the conversion
price then in effect. The conversion price will be subject to adjustment
for stock dividends, stock splits or similar capital reorganizations.
The
holders of Series D Preferred Stock were entitled to vote on all matters on
which the holders of common stock are entitled to vote. Each holder of
Series D Preferred Stock is entitled to a number of votes equal to the number of
shares of common stock that would have been issued to such holder if the Series
D Preferred Stock had been converted at the record date for the meeting of
stockholders.
The
Series D Preferred Stock had an annual dividend rate of 9%, payable
semi-annually on June 30 and December 31. Such dividends may be paid in
cash or in registered shares of the Company’s common stock at the Company’s
option, subject to certain conditions.
F-13
The
Series D Preferred Stock ranks senior to all other outstanding series of
preferred stock and common stock as to the payment of dividends and the
distribution of assets upon voluntary or involuntary liquidation, dissolution or
winding up of the Company’s affairs. The Series D preferred stockholders
will be entitled to receive first, $50,000 per share and all accrued and unpaid
dividends. Subject to any distributions that are required for any other
series of preferred stock, the Series D preferred stockholders are then entitled
to participate with the holders of the common stock in the distribution of
remaining assets on a pro rata basis. If, upon any winding up of the
Company’s affairs, assets available to pay the holders of Series D Preferred
Stock are not sufficient to permit the payment in full, then all assets will be
distributed to the holders of Series D Preferred Stock on a pro rata
basis. If the Company sells, leases or otherwise transfers substantially
all of its assets, consummates a business combination in which it is not the
surviving corporation or, if it is the surviving corporation, if the holders of
a majority of the common stock immediately before the transaction do not hold a
majority of common stock immediately after the transaction, in one or a series
of events, change the majority of the members of the board of directors, or if
any person or entity (other than the holders of Series D Preferred Stock)
acquires more than 50% of the Company’s outstanding stock, then the holders of
Series D Preferred Stock are entitled to receive the same liquidation preference
as described above, except that after receiving $50,000 per preferred share and
any accrued but unpaid dividends, they are not entitled to participate with the
holders of any other series of preferred or common stock in a distribution of
the remaining assets.
For as
long as any shares of Series D Preferred Stock remain outstanding, the Company
is prohibited from (i) paying dividends to its common stockholders, (ii)
amending its certificate of incorporation, (iii) issuing any equity security or
any security convertible into or exercisable for any equity security at a price
of $0.65 or less or with rights senior to the Series D Preferred Stock (except
for certain exempted issuances), (iv) increasing the number of shares of Series
D Preferred Stock or issuing any additional shares of Series D Preferred Stock,
(v) selling or otherwise disposing of all or substantially all of its assets or
intellectual property or entering into a merger or consolidation with another
company unless the Company is the surviving corporation, the Series D Preferred
Stock remains outstanding and there are no changes to the rights and preferences
of the Series D Preferred Stock, (vi) redeeming or repurchasing any capital
stock other than Series D Preferred Stock, (vii) incurring any new debt for
borrowed money in excess of $500,000 and (viii) changing the number of
directors. The Company is required to reserve, out of authorized
shares of common stock, 100% of the number of shares of common stock into which
Series D Preferred Stock is convertible.
Board
and Observer Rights
Pursuant
to the Series D Preferred Stock purchase agreement, from and after the closing,
Xmark Opportunity Fund, L.P., Xmark Opportunity Fund, Ltd. and Xmark JV
Investment Partners, LLC (collectively, the “Xmark Funds”), retained the right
to designate one member to the Company’s Board of Directors. This right lasts
until such time as the Xmark Funds no longer hold at least one-third of
the Series D Preferred Stock issued to them at closing. In addition, the
Xmark Funds, Caduceus Master Fund Limited, Caduceus Capital II, L.P., Summer
Street Life Sciences Hedge Fund Investors, LLC, UBS Eucalyptus Fund, LLC and PW
Eucalyptus Fund, Ltd. (collectively, the “Series D Lead Investors”) have the
right to designate one observer to attend all meetings of the Company’s Board of
Directors, committees thereof and access to all information made available to
members of the Board. This right lasts until such time as the Series D
Lead Investors no longer hold at least one-third of
the Series D Preferred Stock issued to them at closing. The rights to
designate a Board member and Board observer have not been exercised.
Common
Stock Purchase Warrants
The
Series D Warrants are exercisable for an aggregate of 4,365,381 shares of the
Company’s common stock at an exercise price of $0.65 per share and expire in
April 2013. If after the six-month anniversary of the date of issuance of
the warrants there is no effective registration statement registering, or no
current prospectus available for, the resale of the shares issuable upon the
exercise of the warrants, the holder may conduct a cashless exercise whereby the
holder may elect to pay the exercise price by having the Company withhold, upon
exercise, shares having a fair market value equal to the applicable aggregate
exercise price. In the event of such a cashless exercise, the Company
would receive no proceeds from the sale of common stock in connection with such
exercise.
The
warrant exercise price and/or number of warrants is subject to adjustment only
for stock dividends, stock splits or similar capital reorganizations so that the
rights of the warrant holders after such event will be equivalent to the rights
of warrant holders prior to such event.
See
“Series E Preferred Stock Private Placement” for a description of an amendment
to Series D Warrants that was executed on February 11, 2009.
Registration
Rights Agreement
The
Company entered into a registration rights agreement with these purchasers that
requires the Company to file with the Securities and Exchange Commission no
later than 5 business days following the six-month anniversary of the closing of
the Series D Financing, a registration statement covering the resale of (i) a
number of shares of common stock equal to 100% of the shares issuable upon
conversion of the Series D Preferred Stock (excluding 12,000,000 shares of
common stock issuable upon conversion of the Series D Preferred Stock that were
included on a prior registration statement), (ii) a number of shares of common
stock equal to 100% of the shares issuable upon exercise of the warrants issued
in the Series D Financing and (iii) 7,500,000 shares of common stock issuable
upon exercise of warrants dated May 2, 2007 held by the investors. The Company
is required to use its best efforts to have the registration statement declared
effective and keep the registration statement continuously effective under the
Securities Act until the earlier of the date when all the registrable securities
covered by the registration statement have been sold or the second anniversary
of the closing. In the event the Company fails to file the registration
statement within the timeframe specified by the Registration Rights Agreement,
the investors are entitled to receive liquidated damages equal to 1.5% per month
(pro-rated on a daily basis for any period of less than a full month) of the
aggregate purchase price of the Series D Preferred Stock and warrants until the
Company files the delinquent registration statement. The Company is
allowed to suspend the use of the registration statement for not more than 15
consecutive days or for a total of not more than 30 days in any 12-month
period. The registration statement was required to be filed by October 18,
2008. As of December 31, 2008, the registration statement had not been filed.
However, the Company had not concluded that it was probable that damages would
become due. Therefore, no accrual for damages has been recorded. In
connection with a financing that was completed on February 11, 2009, the damages
from October 18, 2008 through February 11, 2009 under the Registration Rights
Agreement were waived and the Registration Rights Agreement was replaced with an
agreement requiring that a registration statement be filed in August 2009.
See “Series E Preferred Stock Private Placement” below.
F-14
Placement
Agent Fee and Other Costs
Following
the closing of the Series D Financing, the Company paid Rodman & Renshaw LLC
a cash fee of $100,000 and paid other closing costs of approximately $105,000.
Amendments
to Prior Warrants and Registration Rights Agreement
At the
closing, the Company entered into an amendment to the registration rights
agreement dated May 2, 2007 with the holders of its Series B Preferred Stock to
revise the definition of registrable securities under the agreement to include
only the 12,000,000 shares of common stock that were included on a prior
registration statement and to extend the registration obligations under the
agreement by one year. On April 28, 2008, the amended registration
statement covering the 12,000,000 shares of common stock required to be
registered was declared effective. Accordingly, the Company has not accrued any
liquidated damages at December 31, 2008 in connection with its registration
obligation under the agreement. If the Company is unable to maintain
the effectiveness of that registration statement through April 11, 2010, the
Company may become liable for liquidated damages in future periods.
In
addition, in connection with the closing, the warrants to purchase common stock
issued in connection with the sale of Series B Preferred Stock were amended to
conform the terms of those warrants to the terms of the warrants issued in the
Series D Financing.
Exchange
of Series D Preferred Stock for Series E Preferred Stock
On
February 11, 2009 all outstanding shares of Series D Preferred Stock and
accumulated dividends thereon were exchanged for shares of Series E preferred
stock. See “Series E Preferred Stock Private Placement” below.
Accounting
Treatment of Series B and Series D Preferred Stock
The terms
of the Series B Preferred Stock contained provisions that allow the holders to
elect to receive a liquidation payment in circumstances that are beyond the
Company’s control. Therefore the shares have been recorded as
redeemable preferred stock outside of permanent equity in the balance
sheet. The shares were initially recorded at their estimated
as-converted fair value of $19,050,000, net of cash issuance costs of
$1,306,949. That value was further reduced by the intrinsic value of
the beneficial conversion feature of $7,824,385. As a result of the
effective adjustment to the conversion price of preferred stock and the
adjustment to the exercise price of warrants that occurred in connection with
the exchange of all outstanding shares of Series B Preferred Stock for shares of
Series D Preferred Stock, in the quarter ended June 30, 2008, a deemed dividend
of $4,598,961 was recorded. This amount represents the incremental
fair value on the date of the exchange resulting from the adjustment to the
conversion price of the Series B Preferred Stock from $1.00 to $0.65
($3,876,912) and the exercise price of the warrants from $1.25 to $0.65
($722,049). These amounts were recorded as both debits and credits to
temporary and permanent equity, respectively, in the year ended December 31,
2008. The incremental fair value of the adjustment to the conversion
price of the Series B Preferred Stock was determined based on the market value
of the additional 8,076,900 shares of common stock that became issuable
following the exchange. The incremental fair value of the modification to the
warrants was the difference between the fair value of the warrants immediately
before and after modification using the Black-Scholes option pricing
model. The fair value of the warrants prior to modification was
calculated based on an estimated volatility of 80%, a discount rate of 2.34% and
a term of 4.08 years. The fair value of the warrants after the modification was
calculated based on an estimated volatility of 80%, a discount rate of 2.57% and
a term of 5 years.
Since the
terms of the Series D Preferred Stock also contained provisions that may require
redemption in circumstances that are beyond the Company’s control, the shares
have been recorded as redeemable preferred stock outside of permanent equity in
the balance sheet as of December 31, 2008. The gross proceeds of
$5,675,000 received in conjunction with the Series D Financing were allocated on
a relative fair-value basis between the Series D Preferred Stock and the
warrants. The relative fair-value of the Series D Warrants of
$1,302,592 was recorded as additional paid-in capital while the relative fair
value of the Series D Preferred Stock of $4,372,408 was recorded as temporary
equity. The carrying value of the Series D Preferred Stock was
immediately adjusted to its fair value of $4,190,762 based on the fair value of
the as-converted common stock. The difference of $181,646 was
recorded as a reduction to the deemed dividend described
above. Issuance costs related to the Series D Financing of $205,328
were netted against temporary equity. The total carrying value of
temporary equity at December 31, 2008 of $13,904,100 consists of the $9,918,666
carrying value of the Series B Preferred Stock on the date of exchange plus the
$3,985,434 carrying value of the Series D Preferred Stock issued in the Series D
Financing. The fair value of the Series D warrants was calculated
using the Black-Scholes pricing model with a volatility of 80%, a discount rate
of 2.57% and a term of 5 years.
F-15
Since the
Company had concluded it is not probable that an event will occur which would
allow the holders of Series D Preferred Stock to elect to receive a liquidation
payment, the carrying value will not be adjusted until the time that such event
becomes probable. The liquidation preference (redemption value) is $22,070,562
at December 31, 2008.
2008 Issuance of Common Stock
–
On August
15, 2008, the Company sold 4,615,384 shares of its common stock to two related
accredited investors for gross proceeds of approximately $3,000,000, pursuant to
a securities purchase agreement dated August 14, 2008.
The
Common Stock Purchase Agreement provides that on and after six months following
the closing, if there is not an available exemption from Rule 144 under the
Securities Act to permit the sale of the common stock by the purchasers, then
the Company will use its best efforts to file a registration statement (the
“Registration Statement”) under the Securities Act with the SEC covering the
resale of the common stock. It further provides that the Company will
use its best efforts to maintain the effectiveness of the Registration Statement
until one year from closing or until all the common stock has been sold or
transferred, whichever occurs first.
This
purchase agreement also provides that if, prior to the public announcement of
the conclusion of the Company’s NOV-002 Phase 3 clinical trial in non-small cell
lung cancer, the Company completes a Subsequent Equity Financing (as defined
therein) and the holders of shares of Series D Preferred Stock receive, as
consideration for their consent to such a financing, a reduction in
the effective conversion price or exercise price, as applicable, of the shares
of Series D Preferred Stock or common stock purchase warrants issued in
connection therewith, or additional shares of common stock, then the purchasers
will be entitled to receive additional shares of common stock based on the
formula detailed in the purchase agreement.
Series E Preferred Stock Private
Placement –
Sale
of Series E Preferred Stock to Purdue
Concurrently
with the execution of the Collaboration Agreement, Novelos sold to Purdue 200
shares of a newly created series of the Company’s preferred stock, designated
“Series E Convertible Preferred Stock”, par value $0.00001 per share (the
“Series E Preferred Stock”), and a warrant (the “Series E Warrant”) to purchase
9,230,769 shares of Novelos common stock for an aggregate purchase price of
$10,000,000 (the “Series E Financing”). Pursuant to the August 25,
2009 Securities Purchase Agreement with Purdue (the “August 2009 Purchase
Agreement”), Purdue has the right either to designate one member to Novelos'
board of directors or to designate one observer to attend all meetings of the
Company’s Board, committees thereof and access to all information made available
to members of the Board. This right lasts until such time as Purdue
or its independent associated companies no longer hold at least one half of the
common stock purchased pursuant to the August 2009 Purchase Agreement and no
longer hold at least one-half of the Series E Preferred Stock issued to them on
February 11, 2009. See Note 11. Purdue has the right to participate in
future equity financings in proportion to their pro rata ownership of common and
preferred stock.
The
Series E Warrant is exercisable for an aggregate of 9,230,769 shares of Novelos
common stock at an exercise price of $0.65 per share. The warrant expires on
December 31, 2015. The warrant exercise price and/or the common stock
issuable pursuant to such warrant are subject to adjustment for stock dividends,
stock splits or similar capital reorganizations so that the rights of the
warrant holders after such event will be equivalent to the rights of warrant
holders prior to such event.
Exchange
of Series D Preferred Stock for Series E Preferred Stock
The
Company also entered into an exchange agreement with the holders (the “Series D
Investors”) of the Company’s Series D Convertible Preferred Stock (the “Series D
Preferred Stock”) under which all 413.5 outstanding shares of Series D Preferred
Stock and accumulated but unpaid dividends thereon were exchanged for 445.442875
shares of Series E Preferred Stock. The rights and preferences of the
Series E Preferred Stock are substantially the same as the Series D Preferred
Stock. In addition, the holders of Series D Preferred Stock waived liquidated
damages through the date of the exchange as a result of the Company’s failure to
file a registration statement covering the shares of common stock underlying the
Series D Preferred Stock and warrants not otherwise registered. In
connection with the execution of this exchange agreement, warrants held by the
Series D Investors to purchase a total of 11,865,381 shares of the Company’s
common stock were amended to extend the expiration of the warrants to December
31, 2015 (from April 11, 2013) and to remove the forced exercise provision.
Also, the registration rights agreement dated May 2, 2007 with the Series D
Investors was amended to revise the definition of registrable securities under
the agreement to refer to Series E Preferred Stock.
Terms
of Series E Preferred Stock
The
shares of Series E Preferred Stock have a stated value of $50,000 per share and
are convertible into shares of common stock any time after issuance at the
option of the holder at $0.65 per share of common stock for an aggregate of
49,649,446 shares of common stock. If there is an effective
registration statement covering the shares of common stock underlying the Series
E Preferred Stock and the VWAP, as defined in the Series E Certificate of
Designations, of Novelos common stock exceeds $2.00 for 20 consecutive trading
days, then the outstanding Series E Preferred Stock will automatically convert
into common stock at the conversion price then in effect. The
conversion price will be subject to adjustment for stock dividends, stock splits
or similar capital reorganizations.
F-16
The
Series E Preferred Stock has an annual dividend rate of 9%, payable
semi-annually on June 30 and December 31. Such dividends may be paid
in cash, in shares of Series E Preferred Stock or in registered shares of
Novelos common stock at the Company’s option, subject to certain conditions.
For as
long as any shares of Series E Preferred Stock remain outstanding, Novelos is
prohibited from (i) paying dividends to its common stockholders, (ii) amending
its certificate of incorporation or by-laws, (iii) issuing any equity security
or any security convertible into or exercisable for any equity security at a
price of $0.65 or less or with rights senior to the Series E Preferred Stock
(except for certain exempted issuances), (iv) increasing the number of shares of
Series E Preferred Stock or issuing any additional shares of Series E Preferred
Stock, (v) selling or otherwise granting rights with respect to all or
substantially all of its assets (or in the case of licensing, any material
intellectual property) or the Company's business and shall not enter into a
merger or consolidation with another company unless Novelos is the surviving
corporation, the Series E Preferred Stock remains outstanding, there are no
changes to the rights and preferences of the Series E Preferred Stock and there
is not created any new class of capital stock senior to the Series E preferred
stock, (vi) redeeming or repurchasing any capital stock other than the Series E
Preferred Stock, (vii) incurring any new debt for borrowed money in excess of
$500,000 and (viii) changing the number of the Company’s directors.
Registration
Rights Agreement
Simultaneous
with the execution of the Purchase Agreement, the Company entered into a
registration rights agreement (the “Registration Rights Agreement”) with Purdue
and the Series D Investors. The Registration Rights Agreement
requires Novelos to file with the Securities and Exchange Commission no later
than 5 business days following the six-month anniversary of the execution of the
Purchase Agreement (the “Filing Deadline”), a registration statement covering
the resale of (i) a number of shares of common stock equal to 100% of the shares
issuable upon conversion of the Series E Preferred Stock (excluding 12,000,000
shares of common stock issuable upon conversion of the Series E Preferred Stock
issued in exchange for shares of outstanding Series D Preferred Stock as
described below that are included on a prior registration statement), (ii)
9,230,769 shares of common stock issuable upon exercise of the warrants issued
to Purdue and (iii) 11,865,381 shares of common stock issuable upon exercise of
warrants held by the Series D Investors. Novelos will be required to use its
best efforts to have the registration statement declared effective and to keep
the registration statement continuously effective under the Securities Act until
the earlier of the date when all the registrable securities covered by the
registration statement have been sold or the second anniversary of the
closing. Purdue and the Series D Investors consented to extend the
Filing Deadline to September 15, 2009. The registration statement was
filed on that date, but has not yet been declared effective. The use
of the registration statement may be suspended for not more than 15 consecutive
days or for a total of not more than 30 days in any 12-month period. The
Registration Rights Agreement replaces a prior agreement dated April 11, 2008
between Novelos and the Series D Investors. The
Registration Rights Agreement was amended on January 21, 2010 pursuant to a
consent and amendment agreement. See Note 11.
Advisor
Fees
Ferghana
Partners, Inc. (“Ferghana”), a New York consulting firm, received a cash fee for
their services in connection with the negotiation and execution of the
Collaboration Agreement equal to $700,000 (or seven percent (7%) of the gross
proceeds to the Company resulting from the sale of Series E Preferred Stock and
Common Stock Purchase Warrants to Purdue in connection with the Collaboration
Agreement). Ferghana will also receive cash fees equal to six percent
(6%) of all payments to Novelos by Mundipharma under the Collaboration Agreement
other than royalties on net sales.
Accounting
Treatment of Series E Financing
The terms
of the Series E Preferred Stock contain provisions that may require redemption
in circumstances that are beyond the Company’s control. Therefore, the shares
have been recorded as redeemable preferred stock outside of permanent equity in
the balance sheet as of September 30, 2009. The gross proceeds of
$10,000,000 received in conjunction with the Series E Financing were allocated
on a relative fair value basis between the Series E Preferred Stock and the
warrants. The relative fair value of the warrants issued to investors
of $2,907,000 (determined using the Black-Scholes option pricing model,
estimated volatility of 80%, a risk-free interest rate of 2.17% and a term equal
to the term of the warrant) was recorded as additional paid-in capital while the
relative fair value of the Series E Preferred Stock of $7,093,000 was recorded
as temporary equity. The carrying value of the Series E Preferred
Stock was immediately adjusted to its fair value of $7,385,000 based on the fair
value of the as-converted common stock. The difference of $292,000
represents a beneficial conversion feature and was recorded as a deemed dividend
to preferred stockholders. Issuance costs related to the Series E Financing of
$795,000 were netted against temporary equity. The Series E Preferred
Stock that was issued in payment of dividends was initially recorded in
temporary equity at the value of the dividends that had accrued totaling
$1,597,000. This amount was then adjusted to the fair value of $1,179,000 based
on the fair value of the as-converted common stock. The difference of
$418,000 was recorded as an offset to the deemed dividends
recorded. The Series E Preferred Stock that was issued in exchange
for outstanding shares of Series D Preferred Stock was recorded at $13,904,000,
the carrying value of the shares of Series D Preferred Stock as of the date of
the exchange.
F-17
As a
result of the modification to the warrants to extend their expiration by
approximately 32 months that occurred in connection with the exchange of all
outstanding shares of Series D Preferred Stock for shares of Series E Preferred
Stock, in the nine months ended September 30, 2009, a deemed dividend of
$840,000 was recorded. This amount represents the incremental fair
value of the warrants immediately before and after modification using the
Black-Scholes option pricing model, volatility of 80%, discount rates of 1.54%
and 2.17% and the remaining warrant term.
Since the
Company has concluded it is not probable that an event will occur which would
allow the holders of Series E Preferred Stock to elect to receive a liquidation
payment, the carrying value will not be adjusted until the time that such event
becomes probable. The liquidation preference (redemption value) is $32,063,000
at September 30, 2009.
August
2009 Common Stock Private Placement
Securities
Purchase Agreement
On August
25, 2009, the Company entered into the August 2009 Purchase Agreement
with Purdue to sell 13,636,364 shares of its common stock, $0.00001 par value
and warrants to purchase 4,772,728 shares of its common stock at an exercise
price of $0.66 per share, expiring December 31, 2015, for an aggregate purchase
price of $9,000,000. Concurrently with the execution and delivery of
the August 2009 Purchase Agreement, the Company initially sold Purdue 5,303,030
shares of its common stock and a warrant to purchase 1,856,062 shares of its
common stock at $0.66 per share for approximately $3,500,000 (the “Initial
Closing”). The sale of the remaining common stock and warrants was
completed on November 10, 2009. See Note 11.
Pursuant
to the August 2009 Purchase Agreement, from the date of the Initial Closing
until Purdue receives certain data related to the Company’s Phase 3 clinical
trial in non-small cell lung cancer (the “Exclusive Negotiation Period”) Purdue
has the exclusive right to negotiate with Novelos for the license or other
acquisition of NOV-002 Rights (as defined in the August 2009 Purchase Agreement)
in the United States (the “U.S. License”). If, during the Exclusive
Negotiation Period, Purdue and Novelos agree on terms for a definitive agreement
for the U.S. License, Novelos shall grant Purdue an option to enter into such
definitive agreement within 30 days after the expiration of the Exclusive
Negotiation Period. Purdue is entitled to a right of first refusal
(the “Right of First Refusal”) with respect to bona fide offers for a U.S.
License received from third parties and approved by the Company’s board of
directors. Under the Right of First Refusal, Novelos will be required
to communicate to Purdue the terms of any such third-party offers received and
Purdue will have 30 days to enter into a definitive agreement with Novelos on
substantially similar terms that provide no lesser economic benefit to Novelos
as provided in the third-party offer. The Right of First Refusal
terminates upon specified business combinations occurring after the Exclusive
Negotiation Period. Novelos has separately entered into letter
agreements with Mundipharma and its independent associated company providing for
a conditional exclusive right to negotiate for, and a conditional right of first
refusal with respect to, NOV-002 Rights for Latin America, Mexico and Canada.
Pursuant
to the August 2009 Purchase Agreement, Purdue has the right to either designate
one member to Novelos’ board of directors (the “Board”) or designate an observer
to attend all meetings of the Board, committees thereof and access to all
information made available to members of the Board. This right lasts
until the later of such time as Purdue or its independent associated
companies no longer hold at least one-half of the common stock purchased
pursuant to the August 2009 Purchase Agreement and no longer hold at least
one-half of the Series E Preferred Stock issued to them on February 11, 2009.
The right to designate a board observer had previously been granted in
connection with the financing that occurred on February 11, 2009 and Purdue
appointed such an observer in February 2009. Purdue also has the right to
participate in future equity financings in proportion to their pro rata
ownership of common and preferred stock.
Common
Stock Purchase Warrant
The
common stock purchase warrant has an exercise price of $0.66 per share and
expires on December 31, 2015. The warrant exercise price and/or the
number of shares of common stock issuable pursuant to such warrant will be
subject to adjustment for stock dividends, stock splits or similar capital
reorganizations so that the rights of the warrant holders after such event will
be equivalent to the rights of warrant holders prior to such
event. The relative fair value of the warrant issued to Purdue at the
Initial Closing of $752,000 was recorded as a component of additional paid-in
capital. The fair value of the warrant was determined using the
Black-Scholes method of valuation, estimated volatility of 90%, a risk-free
interest rate of 2.02% and a term equal to the term of the warrant.
Registration
Rights Agreement
As
part of this transaction, the Company entered into a registration rights
agreement with Purdue. The registration rights agreement requires the
Company to file with the Securities and Exchange Commission no later than May
17, 2010, a registration statement covering the resale of all the shares of
common stock issued pursuant to the August 2009 Purchase Agreement and all
shares of common stock issuable upon exercise of the warrants issued pursuant to
the August 2009 Purchase Agreement. The Company is required to use its best
efforts to have the registration statement declared effective and keep the
registration statement continuously effective under the Securities Act until the
earlier of the date when all the registrable securities covered by the
registration statement have been sold or the second anniversary of the
final closing. In the event the Company fails to file the
registration statement timely, it will be required to pay Purdue liquidated
damages equal to 1.5% per month (pro-rated on a daily basis for any period of
less than a full month) of the aggregate purchase price of the common stock and
until the delinquent registration statement is filed. The Company
will be allowed to suspend the use of the registration for not more than 15
consecutive days or for a total of not more than 30 days in any 12-month
period. As of September 30, 2009, and through the date of this filing, the
Company has not concluded that it is probable that damages will become due;
therefore, no accrual for damages has been recorded.
F-18
Common
Stock Warrants — The
following table summarizes information with regard to outstanding warrants
issued in connection with equity and debt financings as of September 30, 2009.
Offering
|
Outstanding
(as adjusted)
|
Exercise
Price
(as adjusted)
|
Expiration Date
|
||||||
2005
Bridge Financing
|
720,000 | $ | 0.625 |
April
1, 2010
|
|||||
2005
Issuance of Common Stock - Placement agents and finders
|
762,810 | $ | 0.65 |
August
9, 2010
|
|||||
Series
A Preferred Stock (1):
|
|||||||||
Purchasers
– September 30, 2005 closing
|
909,090 | $ | 0.65 |
September
30, 2010
|
|||||
Purchasers
– October 3, 2005 closing
|
60,606 | $ | 0.65 |
October
3, 2010
|
|||||
2006
Issuance of Common Stock – Purchasers and placement agents
|
5,559,674 | $ | 1.78 |
March
7, 2011
|
|||||
Series
B Preferred Stock:
|
|||||||||
Purchasers
|
7,500,000 | $ | 0.65 |
December
31, 2015
|
|||||
Placement
agents
|
900,000 | $ | 1.25 |
May
2, 2012
|
|||||
Series
C Exchange
|
1,333,333 | $ | 1.25 |
May
2, 2012
|
|||||
Series
D Preferred Stock
|
4,365,381 | $ | 0.65 |
December
31, 2015
|
|||||
Series
E Preferred Stock
|
9,230,769 | $ | 0.65 |
December
31, 2015
|
|||||
August
2009 Private Placement
|
1,856,062 | $ | 0.66 |
December
31, 2015
|
|||||
Total
|
33,197,725 |
(1)
|
Concurrent
with the closing of the Series B Preferred Stock financing, all shares of
Series A Preferred Stock were exchanged for shares of Series C Preferred
Stock.
|
On August
11, 2008, warrants to purchase 6,923,028 shares of common stock expired
unexercised.
During
the nine months ended September 30, 2009, the Company issued 79,028 shares of
common stock in connection with the cashless exercise of warrants to purchase
283,333 shares of the Company’s common stock. The warrants had an
expiration date of August 9, 2010 and an exercise price of $0.65 per share. The
warrants had been recorded as a derivative liability. Upon exercise, $115,000
was reclassified from derivative liability to paid-in capital.
Other
than those described above, there have been no warrant exercises through
September 30, 2009.
Reserved Shares —
The following shares were reserved for future issuance upon exercise of stock
options or warrants or conversion of preferred stock as of the dates indicated:
September
30,
|
December 31,
|
|||||||||||
2009
|
2008
|
2007
|
||||||||||
2000
Stock Option Plan
|
56,047 | 56,047 | 73,873 | |||||||||
2006
Stock Incentive Plan
|
4,770,000 | 4,770,000 | 2,220,000 | |||||||||
Options
issued outside of formalized plans
|
2,453,778 | 2,453,778 | 2,553,778 | |||||||||
Warrants
|
33,197,725 | 28,102,033 | 28,973,047 | (1) | ||||||||
Preferred
stock
|
53,589,726 | 36,829,192 | 22,014,000 | (1) | ||||||||
Total
shares reserved for future issuance
|
94,067,276 | 72,211,050 | 55,834,698 |
(1) The
amount of reserved shares includes shares reserved in excess of the number
currently exercisable or convertible in accordance with the related financing
agreements.
F-19
7. STOCK-BASED
COMPENSATION
The
Company’s stock-based compensation plans are summarized below:
2000 Stock Option
Plan. The Company's stock option plan established in August
2000 (the “2000 Plan”) provides for grants of options to purchase up to 73,873
shares of common stock. Grants may be in the form of incentive stock options or
nonqualified options. The board of directors determines exercise prices and
vesting periods on the date of grant. Options generally vest annually over three
years and expire on the tenth anniversary of the grant date. No options were
granted or exercised under the 2000 Plan during 2007 or 2008. During
2008, options to purchase 17,826 shares of common stock were canceled.
2006 Stock Incentive
Plan. On May 1, 2006, the Company’s board of directors
adopted, and on July 21, 2006 the Company’s stockholders approved, the 2006
Stock Incentive Plan (the “2006 Plan”). A total of 5,000,000 shares
of common stock are reserved for issuance under the 2006 Plan for grants of
incentive or nonqualified stock options, rights to purchase restricted and
unrestricted shares of common stock, stock appreciation rights and performance
share grants. A committee of the board of directors determines
exercise prices, vesting periods and any performance requirements on the date of
grant, subject to the provisions of the 2006 Plan. Options are granted at or
above the fair market value of the common stock at the grant date and expire on
the tenth anniversary of the grant date. Vesting periods are generally two to
three years. In the years ended December 31, 2008 and 2007, stock
options for the purchase of 2,560,000 and 1,380,000 shares of common stock,
respectively, were granted under the 2006 Plan. During 2008, options
to purchase 10,000 shares of common stock were canceled. There have been no
exercises under the 2006 Plan. As of December 31, 2008 and September
30, 2009, 230,000 remain available for grant under the 2006 Plan. Options
granted pursuant to the 2006 Stock Incentive Plan generally will become fully
vested upon a termination event occurring within one year following a change in
control, as defined. A termination event is defined as either
termination of employment or services other than for cause or constructive
termination of employees or consultants resulting from a significant reduction
in either the nature or scope of duties and responsibilities, a reduction in
compensation or a required relocation.
Other Stock Option
Activity. During 2005 and
2004, the Company issued a total of 2,653,778 stock options to employees,
directors and consultants outside of any formalized plan. These options are
exercisable within a ten-year period from the date of grant, and vest at various
intervals with all options being fully vested within two to three
years of the grant date. The options are not transferable except by will or
domestic relations order. The option price per share is not less than the fair
market value of the shares on the date of the grant. During the years
ended December 31, 2008 and 2007, options to purchase 100,000 and 25,000 shares,
respectively, were exercised.
Accounting
for Stock-Based Compensation
The
Company accounts for employee stock-based compensation in accordance with the
guidance of FASB ASC Topic 718, Compensation – Stock
Compensation which requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values. The Company accounts for
non-employee stock-based compensation in accordance with the guidance of FASB
ASC Topic 505, Equity
which requires that companies recognize compensation expense based on the
estimated fair value of options granted to non-employees over their vesting
period, which is generally the period during which services are rendered by such
non-employees.
The
following table summarizes amounts charged to expense for stock-based
compensation related to employee and director stock option grants and
stock-based compensation recorded in connection with stock options and
restricted stock awards granted to non-employee consultants:
Nine
months ended
September
30,
|
Year
Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Employee
and director stock option grants:
|
||||||||||||||||
Research
and development
|
$ | 106,500 | $ | 135,333 | $ | 159,519 | $ | 163,558 | ||||||||
General
and administrative
|
219,449 | 174,028 | 235,675 | 179,675 | ||||||||||||
325,949 | 309,361 | 395,194 | 343,233 | |||||||||||||
Non-employee
consultants stock option grants and restricted stock awards:
|
||||||||||||||||
Research
and development
|
111,658 | 4,339 | 24,131 | 17,233 | ||||||||||||
General
and administrative
|
65,554 | 16,596 | 34,002 | 142,824 | ||||||||||||
177,212 | 20,935 | 58,133 | 160,057 | |||||||||||||
Total
stock-based compensation
|
$ | 503,161 | $ | 330,296 | $ | 453,327 | $ | 503,290 |
F-20
On May
13, 2008, the Company entered into a separation agreement with M. Taylor Burtis,
a former officer of the Company, that provided, among other terms that all
166,667 unvested options held by Ms. Burtis as of May 13, 2008 were immediately
vested and that she will have until December 31, 2009 to exercise the total
350,000 options held by her, at which time any unexercised options will expire.
The 2008 stock-based compensation for research and development employees
included in the table above includes incremental stock-based compensation
expense of $23,700 that was recorded in connection with the modification of the
option terms.
In
January 2009, the Company modified the terms of options to purchase 40,000
shares of common stock held by two employees to vest all unvested options and to
extend the expiration dates of the options. The modification was made in
connection with the termination of the two employees to reduce costs. During the
nine months ended September 30, 2009, incremental stock-based compensation
expense of $8,000 was recorded in connection with the modification of the option
terms.
Determining
Fair Value
Valuation and amortization
method. The fair value of each stock award is estimated on the grant date
using the Black-Scholes option-pricing model. The estimated fair
value of employee stock options is amortized to expense using the straight-line
method over the vesting period.
Volatility. Volatility is
determined based on the Company’s estimate of fluctuation in its common stock
price and its review of comparable public company data due to the limited amount
of time that the Company’s common stock has been publicly traded.
Risk-free interest rate. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant commensurate with the expected term assumption.
Expected term. The expected
term of stock options granted is based on the Company’s estimate of when options
will be exercised in the future as there have been limited stock option
exercises to date. The expected term is generally applied to one group as a
whole as the Company does not expect substantially different exercise or
post-vesting termination behavior within its employee population.
Forfeitures. As
required by SFAS 123R, the Company records stock-based compensation expense only
for those awards that are expected to vest. SFAS 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. The term “forfeitures” is
distinct from “cancellations” or “expirations” and represents only the unvested
portion of the surrendered option. The Company has applied an annual forfeiture
rate of 0% to all unvested options as of December 31, 2008 as the Company has
experienced very few forfeitures to date and believes that there is insufficient
history to develop an accurate estimate of future forfeitures. This analysis
will be re-evaluated semi-annually and the forfeiture rate will be adjusted as
necessary. Ultimately, the actual expense recognized over the vesting
period will be for only those shares that vest.
The
following table summarizes weighted average values and assumptions used for
options granted to employees, directors and consultants in the periods
indicated:
Nine
Months
Ended
September
30,
|
Year
Ended
December
31,
|
|||||||||||
2008
|
2008
|
2007
|
||||||||||
Volatility
|
80 | % | 80 | % | 80 | % | ||||||
Weighted-average
volatility
|
80 | % | 80 | % | 80 | % | ||||||
Risk-free
interest rate
|
3.14 | % | 1.50%-3.28 | % | 3.57%-4.66 | % | ||||||
Expected
life (years)
|
5 | 5 | 5 | |||||||||
Dividend
|
0 | % | 0 | % | 0 | % | ||||||
Weighted-average
exercise price
|
$ | 0.60 | $ | 0.46 | $ | 0.57 | ||||||
Weighted-average
grant-date fair value
|
$ | 0.39 | $ | 0.30 | $ | 0.38 |
There
were no stock option grants during the nine months ended September 30, 2009.
Stock
Option Activity
A summary
of stock option activity under the 2000 Plan, the 2006 Plan and outside of any
formalized plan is as follows:
F-21
Options
Outstanding
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contracted
Term in
Years
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
at January 1, 2007
|
3,492,651 | $ | 0.70 | 8.4 | $ | 1,773,777 | ||||||||||
Options
granted
|
1,380,000 | $ | 0.57 | |||||||||||||
Options
exercised
|
(25,000 | ) | $ | 0.01 | ||||||||||||
Outstanding
at December 31, 2007
|
4,847,651 | $ | 0.67 | 8.1 | $ | 1,308,961 | ||||||||||
Options
granted
|
2,560,000 | $ | 0.46 | |||||||||||||
Options
exercised
|
(100,000 | ) | $ | 0.01 | ||||||||||||
Options
canceled
|
(27,826 | ) | $ | 2.23 | ||||||||||||
Outstanding
at December 31, 2008
|
7,279,825 | $ | 0.60 | 7.9 | $ | 989,718 | ||||||||||
Options
granted
|
— | |||||||||||||||
Options
exercised
|
— | |||||||||||||||
Outstanding
at September 30, 2009
|
7,279,825 | $ | 0.60 | 7.1 | $ | 3,333,459 | ||||||||||
Exercisable
at September 30, 2009
|
4,692,732 | $ | 0.67 | 6.1 | $ | 2,213,727 |
The
aggregate intrinsic value of options outstanding is calculated based on the
positive difference between the closing market price of the Company’s common
stock at the end of the respective period and the exercise price of the
underlying options. During the years ended December 31, 2008 and 2007, the total
intrinsic value of options exercised was $74,000 and $18,750, respectively, and
the total amount of cash received from exercise of these options was $1,000 and
$250, respectively.
As of
September 30, 2009, there was approximately $554,000 of total unrecognized
compensation cost related to unvested stock-based compensation arrangements. Of
this total amount, 19%, 54% and 27% are expected to be recognized during 2009,
2010 and 2011, respectively. The Company expects 2,587,093 in unvested options
to vest in the future. The weighted-average grant-date fair value of vested and
unvested options outstanding at September 30, 2009 was $0.41 and $0.30,
respectively.
As of
December 31, 2008 there was approximately $886,000 of total unrecognized
compensation cost related to unvested share-based compensation arrangements. Of
this total amount, 53%, 31% and 16% is expected to be recognized during 2009,
2010 and 2011, respectively. The Company expects 3,086,678 in unvested options
to vest in the future. The weighted average grant-date fair value of vested and
unvested options outstanding at December 31, 2008 was $0.41 and $0.31,
respectively. The weighted average grant-date fair value of vested and unvested
options outstanding at December 31, 2007 was $0.39 and $0.41, respectively. The
fair value of options that vested during the years ended December 31, 2008 and
2007 was approximately $500,000 and $701,000, respectively.
8.
INCOME TAXES
The
Company’s deferred tax assets consisted of the following at December 31:
2008
|
2007
|
|||||||
Net
operating loss carryforwards
|
$ | 7,128,000 | $ | 4,547,000 | ||||
Research
and development
expenses
|
13,681,000 | 9,718,000 | ||||||
Tax
credits
|
1,311,000 | 941,000 | ||||||
Capital
loss carryforward
|
340,000 | 403,000 | ||||||
Stock-based
compensation
|
449,000 | 375,000 | ||||||
Gross
deferred tax asset
|
22,909,000 | 15,984,000 | ||||||
Valuation
allowance
|
(22,909,000 | ) | (15,984,000 | ) | ||||
Net
deferred tax asset
|
$ | — | $ | — |
As of
December 31, 2008, the Company had federal and state net operating loss
carryforwards of approximately $19,018,000 and $12,367,000 respectively, which
expire through 2028. In addition, the Company has federal and state
research and development and investment tax credits of approximately $1,077,000
and $356,000, respectively which expire through 2028. The amount of
net operating loss carryforwards which may be utilized annually in future
periods may be limited pursuant to Section 382 of the Internal Revenue Code as a
result of substantial changes in the Company’s ownership that have occurred or
that may occur in the future.
The
capital loss carryforward relates to the loss recorded in prior years for
Novelos’ investment in an unrelated company.
Because
of the Company’s limited operating history, continuing losses and uncertainty
associated with the utilization of the net operating loss carryforwards in the
future, management has provided a 100% allowance against the Company’s gross
deferred tax asset. In both 2008 and 2007, the increase in the
valuation allowance represents the principal difference between the Company’s
total statutory tax rate of approximately 40% and its effective rate of 0%.
In June
2006, the FASB issued new authoritative guidance now codified as FASB ASC Topic
740, Income Taxes which
clarified the accounting for uncertainty in income tax positions. This
interpretation requires that the Company recognize in its financial statements
the impact of a tax position if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The new
guidance was effective for financial statements for fiscal years beginning after
December 15, 2006. The cumulative effect of applying the new guidance, if any,
are required to be recorded as an adjustment to accumulated deficit. The Company
adopted this guidance effective January 1, 2007 and upon adoption, there was no
adjustment to accumulated deficit as the Company had no unrecognized tax
benefits, and there were no accrued interest amounts or penalties related to tax
contingencies.
F-22
The
Company did not have any unrecognized tax benefits or accrued interest and
penalties at any time during the years ended December 31, 2008 and 2007, and
does not anticipate having any unrecognized tax benefits over the next twelve
months. The Company is subject to audit by the IRS for tax periods
commencing January 1, 2005.
9.
NET LOSS PER SHARE
Basic net
loss per share is computed by dividing net loss attributable to common
stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock and the dilutive potential common stock
equivalents then outstanding. Potential common stock equivalents consist of
stock options, warrants and convertible preferred stock and accumulated
dividends. Since the Company has a net loss for all periods
presented, the inclusion of common stock equivalents in the computation would be
antidilutive. Accordingly, basic and diluted net loss per share are the same.
The
following potentially dilutive securities have been excluded from the
computation of diluted net loss per share since their inclusion would be
antidilutive:
Nine
Months Ended
September
30,
|
Year
Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Stock
options
|
7,279,825 | 5,154,825 | 7,279,825 | 4,847,651 | ||||||||||||
Warrants
|
33,197,725 | 28,102,033 | 28,102,033 | 26,873,047 | ||||||||||||
Conversion
of preferred stock
|
52,589,726 | 36,829,192 | 36,829,192 | 18,264,000 |
10. COMMITMENTS
On May
11, 2009, the Company entered into a twelve-month lease for office space,
commencing September 1, 2009. Monthly rent is $5,275 per month. Rent expense was
$79,000 for the nine months ended September 30, 2009 and $92,100 and $81,450 for
the years ended December 31, 2008 and 2007, respectively. Future minimum lease
payments under this non-cancelable lease are $15,825 in the last three months of
2009 and $42,200 during 2010.
The
Company is obligated to a Russian company, ZAO BAM, under a royalty and
technology transfer agreement. Mark Balazovsky, a director of the Company until
November 2006, is the majority shareholder of ZAO BAM. Pursuant to the royalty
and technology transfer agreement between the Company and ZAO BAM, the Company
is required to make royalty payments of 1.2% of net sales of oxidized
glutathione-based products. The Company is also required to pay ZAO BAM $2
million for each new oxidized glutathione-based drug within eighteen months
following FDA approval of such drug.
If a
royalty is not being paid to ZAO BAM on net sales of oxidized glutathione
products, then the Company is required to pay ZAO BAM 3% of all license
revenues. If license revenues exceed the Company’s cumulative expenditures
including, but not limited to, preclinical and clinical studies, testing, FDA
and other regulatory agency submission and approval costs, general and
administrative costs, and patent expenses, then the Company would be required to
pay ZAO BAM an additional 9% of the amount by which license revenues exceed the
Company’s cumulative expenditures. During 2008, the Company paid ZAO BAM
$15,000, which was 3% of license payments received under the collaboration
agreement described in Note 5. This amount is included in research and
development expense on the statement of operations.
As a
result of the assignment to Novelos of the exclusive worldwide intellectual
property and marketing rights of oxidized glutathione (excluding the Russian
Territory), Novelos is obligated to the Oxford Group, Ltd. for future royalties.
Simyon Palmin, a founder of Novelos, a director until August 12, 2008 and the
father of the Company’s president and chief executive officer, is president of
Oxford Group, Ltd. Mr. Palmin was also an employee of the Company and is now a
consultant to the Company. Pursuant to the agreement, as revised May 26, 2005,
Novelos is required to pay Oxford Group, Ltd. a royalty in the amount of 0.8% of
the Company’s net sales of oxidized glutathione-based products.
On July
15, 2005, the Company entered into an employment agreement with Christopher J.
Pazoles, whereby he agreed to serve as the Company’s vice president of research
and development for an initial term of two years. The agreement is automatically
renewed for successive one-year terms unless notice of termination is provided
by either party at least 60 days prior to the end of any such term. The
agreement was renewed for an additional one-year term on July 15, 2009 in
accordance with its terms. The agreement provides for a minimum salary of
$195,000 during the current and any future terms as well as participation in
standard benefit programs. The agreement further provides that upon resignation
for good reason or termination without cause, both as defined, Dr. Pazoles will
receive his base salary for the remainder of the contract term. In addition, his
benefits will be paid for the twelve months following termination.
F-23
The
Company entered into an employment agreement with Harry Palmin effective January
1, 2006, whereby he agreed to serve as the Company’s president and chief
executive officer for an initial term of two years. The agreement is
automatically renewed for successive one-year terms unless notice of termination
is provided by either party at least 90 days prior to the end of such term. The
agreement was renewed for an additional one-year term on January 1, 2009 in
accordance with its terms. The agreement provides for an initial salary of
$225,000, participation in standard benefit programs and an annual cash bonus at
the discretion of the compensation committee. The agreement further provides
that upon resignation for good reason or termination without cause, both as
defined, Mr. Palmin will receive his pro rata share of the average of his
annual bonus paid during the two fiscal years preceding his termination; his
base salary and benefits for 11 months after the date of termination and fifty
percent of his unvested stock options will vest. The agreement also contains a
non-compete provision, which prohibits Mr. Palmin from competing with the
Company for one year after termination of his employment with the Company.
11. SUBSEQUENT
EVENTS
Results
of Special Meeting of Shareholders
Increase
in Authorized Shares of Common Stock
On
November 3, 3009, the Company held a special meeting in lieu of annual meeting
of stockholders. At the meeting, the Company’s stockholders approved
an amendment to the certificate of incorporation to increase the total number of
authorized shares of the Company’s common stock by 75 million shares, from 150
million to 225 million. Following the adjournment of the meeting, the
amendment was filed with the Secretary of State of Delaware, and it went into
effect on November 3, 2009.
Re-Election
of Directors; Amendment to 2006 Stock Option Plan
In
addition to the approval of the amendment of the certificate of incorporation as
described above, the Company’s stockholders re-elected each incumbent
member of the board of directors and approved an amendment to the
Company’s 2006 Stock Incentive Plan to increase the shares of common
stock authorized under the plan by 5 million, from 5 million to 10
million. The amendment to the 2006 Stock Incentive Plan became
effective immediately upon its approval by the stockholders.
Conversion
of Preferred Stock
On
January 22, 2010, 1,085,250 shares of the Company’s common stock were issued
upon conversion of 13 shares of its Series E preferred stock, having an
aggregate stated value of $650,000, and accumulated dividends
thereon.
On
January 10, 2010, 790,819 shares of the Company’s common stock were issued upon
conversion of 9.494962 shares of Series E preferred stock, having an aggregate
stated value of $474,748, and accumulated undeclared dividends
thereon.
On
December 23, 2009, 650,000 shares of the Company’s common stock were issued upon
conversion of 7.8386 shares of Series E preferred stock, having an aggregate
stated value of $391,930, and accumulated undeclared dividends
thereon.
On
December 21, 2009, 712,806 shares of the Company’s common stock were issued upon
conversion of 8.6 shares of Series E preferred stock, having an aggregate stated
value of $430,000, and accumulated undeclared dividends
thereon.
On
December 14, 2009, 289,625 shares of the Company’s common stock were issued upon
conversion of 3.5 shares of Series E preferred stock, having an aggregate stated
value of $175,000, and accumulated undeclared dividends
thereon.
On
December 10, 2009, 1,653,460 shares of the Company’s common stock were issued
upon conversion of 20 shares of Series E preferred stock, having an aggregate
stated value of $1,000,000, and accumulated undeclared dividends
thereon.
On
November 17, 2009, 13 shares of the Company’s Series E preferred stock, having
an aggregate stated value of $650,000, and accumulated dividends thereon, were
converted into 1,068,999 shares of common stock.
On
November 10, 2009, 5.2 shares of the Company’s Series E preferred stock, having
an aggregate stated value of $260,000, and accumulated dividends thereon, were
converted into 426,999 shares of common stock.
Warrant
Exercises
On
January 11, 2010, 35,106 shares of the Company’s common stock were issued upon
the cashless exercise of warrants to purchase 75,000 shares of common
stock. The warrants had an expiration date of May 2, 2012 and an
exercise price of $1.25.
On
January 7, 2010, 153,492 shares of the Company’s common stock were issued upon
the cashless exercise of warrants to purchase 209,230 shares of common stock.
The warrants had an expiration date of August 9, 2010 and an exercise price of
$0.65 per share.
On
January 6, 2010, 63,208 shares of the Company’s common stock were issued upon
the cashless exercise of warrants to purchase 161,156 shares of common stock.
The warrants had an expiration date of March 7, 2011 and an exercise price of
$1.72 per share.
On
January 5, 2010, 25,162 shares of the Company’s common stock were issued upon
the cashless exercise of warrants to purchase 32,306 of common
stock. The warrants had an expiration date of August 9, 2010 and an
exercise price of $0.65 per share.
On
January 5, 2010, we issued 47,902 shares of the Company’s common stock were
issued upon the cashless exercise of warrants to purchase 83,333 shares of
common stock. The warrants had an expiration date of May 2, 2012 and
an exercise price of $1.25.
On
January 5, 2010, we issued 296,090 shares of the Company’s common stock were
issued upon the cashless exercise of warrants to purchase 805,360 shares of
common stock. The warrants had an expiration date of March 7, 2011 and an
exercise price of $1.72 per share.
On
January 5, 2010, 314,982 shares of the Company’s common stock were issued upon
the cashless exercise of warrants to purchase 400,000 shares of common stock.
The warrants had an expiration date of April 1, 2010 and an exercise price of
$0.625 per share.
On
January 4, 2010, 7,194 shares of the Company’s common stock were issued upon the
cashless exercise of warrants to purchase 25,000 shares of common
stock. The warrants had an expiration date of March 7, 2011 and an
exercise price of $1.72 per share.
On
December 30, 2009, 26,454 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
201,462 shares of common stock. The warrants had an expiration date
of March 7, 2011 and an exercise price of $1.72 per share.
On
December 30, 2009, 20,016 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
30,769 shares of common stock. The warrants had an expiration date of
August 9, 2010 and an exercise price of $0.65 per share.
On
December 28, 2009, 150,396 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
215,000 shares of common stock. The warrants had an expiration date
of April 1, 2010 and an exercise price of $0.625 per share.
On
December 24, 2009, 36,008 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
55,000 shares of common stock. The warrants had an expiration date of
April 1, 2010 and an exercise price of $0.625 per share.
On
December 23, 2009, 32,244 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
50,000 shares of common stock. The warrants had an expiration date of
April 1, 2010 and an exercise price of $0.625 per share.
On
December 23, 2009, 85,326 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
135,292 shares of common stock. The warrants had an expiration date
of August 9, 2010 and an exercise price of $0.65 per share.
On
December 23, 2009, 38,223 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
60,606 shares of common stock. The warrants had an expiration date of
October 3, 2010 and an exercise price of $0.65 per share.
On
December 15, 2009, 16,134 shares of the Company’s common stock were issued in
connection with the cashless exercise of warrants to purchase an aggregate of
35,923 shares of common stock. The warrants had an expiration date of
August 9, 2010 and an exercise price of $0.65 per share.
Final
Closing on August 2009 Private Placement
On
November 10, 2009, the Company completed the final closing under the August 2009
Purchase Agreement and sold Purdue 8,333,334 shares of Novelos common stock and
warrants to purchase 2,916,668 shares of Novelos common stock for gross proceeds
of $5,500,000. The terms of the August 2009 Purchase Agreement are
described in Note 6.
The
issuance of shares in the final closing resulted in anti-dilution adjustments to
certain warrants. Pursuant to their terms, the outstanding warrants
were increased by a total of 191,018 shares and their exercise price was
decreased to $1.72 from $1.78.
Consent and Amendment
Agreement
As a
result of comments received from the SEC, on January 21, 2010, the Company
entered into a consent and amendment agreement with the holders of its Series E
Preferred Stock that provided for the filing of an amendment to a registration
statement previously filed on December 7, 2009, reducing the number of shares
offered from 58,745,592 to 19,000,000. In addition, the Company
agreed to use its reasonable best efforts to register the shares excluded from
the registration statement as may be permitted by the SEC until such time as all
of these shares either have been registered or may be sold without restriction
in reliance on Rule 144 under the Securities Act.
F-24
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table provides information regarding the various actual and
anticipated expenses payable by us in connection with the issuance and
distribution of the securities being registered. We are paying the expenses
incurred in registering the shares, but all selling and other expenses incurred
by the selling stockholders will be borne by the selling stockholders. All
amounts shown are estimates except the Securities and Exchange Commission
registration fee.
Amount
|
||||
$ | 2,622 | |||
Accounting
fees and expenses
|
5,000 | |||
Legal
fees and expenses
|
50,000 | |||
Printing
and related fees
|
8,000 | |||
Miscellaneous
|
5,000 | |||
Total
|
$ | 70,622 |
Item 14.
Indemnification of Directors and Officers.
Section
102(b)(7) of the Delaware General Corporation Law allows us to adopt a charter
provision eliminating or limiting the personal liability of directors to us or
our stockholders for breach of fiduciary duty as directors, but the provision
may not eliminate or limit the liability of directors for (a) any breach of the
director's duty of loyalty to us or our stockholders, (b) any acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (c) unlawful payments of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law or (d) any
transaction from which the director derived an improper personal benefit.
Article Seventh of our charter provides that none of our directors shall be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as a director, subject to the limitations imposed by Section
102(b)(7). Article Seventh also provides that no amendment to or repeal of
Article Seventh shall apply to or have any effect on the liability or the
alleged liability of any director with respect to any acts or omissions of such
director occurring prior to such amendment or repeal. A principal effect of
Article Seventh is to eliminate or limit the potential liability of our
directors for monetary damages arising from breaches of their duty of care,
unless the breach involves one of the four exceptions described in (a) through
(d) above.
Section
145 of the Delaware General Corporation Law provides, in general, that a
corporation incorporated under the laws of the State of Delaware, such as us,
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding (other
than a derivative action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Article
Eighth of our amended and restated certificate of incorporation and Section 5.1
of our bylaws provide that we will indemnify our directors, officers, employees
and agents to the extent and in the manner permitted by the provisions of the
Delaware General Corporation Law, as amended from time to time, subject to any
permissible expansion or limitation of such indemnification, as may be set forth
in any shareholders’ or directors’ resolution or by contract.
The
effect of these provisions would be to permit indemnification by us for, among
other liabilities, liabilities arising out of the Securities Act of
1933.
Item
15. Recent Sales of Unregistered Securities
In the
last three years we have sold the following securities in reliance on one or
more exemptions from registration under the Securities Act of 1933, as amended,
including the exemption under Section 4(2) thereof unless otherwise
indicated:
2010
On
January 22, 2010, 1,085,250 shares of our common stock were issued upon
conversion of 13 shares of our Series E preferred stock, having an aggregate
stated value of $650,000, and accumulated dividends
thereon.
On
January 11, 2010, we issued 35,106 shares of common stock upon the cashless
exercise of warrants to purchase 75,000 shares of our common
stock. The warrants had an expiration date of May 2, 2012 and an
exercise price of $1.25.
On
January 10, 2010, we issued 790,819 shares of our common stock upon conversion
of 9.494962 shares of our Series E preferred stock, having an aggregate stated
value of $474,748, and accumulated undeclared dividends
thereon.
On
January 7, 2010, we issued 153,492 shares of common stock upon the cashless
exercise of warrants to purchase 209,230 shares of our common stock. The
warrants had an expiration date of August 9, 2010 and an exercise price of $0.65
per share.
On
January 6, 2010, we issued 63,208 shares of common stock upon the cashless
exercise of warrants to purchase 161,156 shares of our common stock. The
warrants had an expiration date of March 7, 2011 and an exercise price of $1.72
per share.
On
January 5, 2010, we issued 25,162 shares of common stock upon the cashless
exercise of warrants to purchase 32,306 of our common stock. The
warrants had an expiration date of August 9, 2010 and an exercise price of $0.65
per share.
On
January 5, 2010, we issued 47,902 shares of common stock upon the cashless
exercise of warrants to purchase 83,333 shares of our common
stock. The warrants had an expiration date of May 2, 2012 and an
exercise price of $1.25.
On
January 5, 2010, we issued 296,090 shares of common stock upon the cashless
exercise of warrants to purchase 805,360 shares of our common stock. The
warrants had an expiration date of March 7, 2011 and an exercise price of $1.72
per share.
On
January 5, 2010, we issued 314,982 shares of common stock upon the cashless
exercise of warrants to purchase 400,000 shares of our common stock. The
warrants had an expiration date of April 1, 2010 and an exercise price of $0.625
per share.
On
January 4, 2010, we issued 7,194 shares of common stock upon the cashless
exercise of warrants to purchase 25,000 shares of our common
stock. The warrants had an expiration date of March 7, 2011 and an
exercise price of $1.72 per share.
2009
On
December 30, 2009, we issued 26,454 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 201,462
shares of our common stock. The warrants had an expiration date of
March 7, 2011 and an exercise price of $1.72 per share.
On
December 30, 2009, we issued 20,016 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 30,769 shares
of our common stock. The warrants had an expiration date of August 9,
2010 and an exercise price of $0.65 per share.
On
December 28, 2009, we issued 150,396 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 215,000
shares of our common stock. The warrants had an expiration date of
April 1, 2010 and an exercise price of $0.625 per share.
On
December 24, 2009, we issued 36,008 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 55,000 shares
of our common stock. The warrants had an expiration date of April 1,
2010 and an exercise price of $0.625 per share.
On
December 23, 2009, we issued 650,000 shares of our common stock upon conversion
of 7.8386 shares of our Series E preferred stock, having an aggregate stated
value of $391,930, and accumulated undeclared dividends
thereon.
On
December 23, 2009, we issued 32,244 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 50,000 shares
of our common stock. The warrants had an expiration date of April 1,
2010 and an exercise price of $0.625 per share.
On
December 23, 2009, we issued 85,326 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 135,292
shares of our common stock. The warrants had an expiration date of
August 9, 2010 and an exercise price of $0.65 per share.
On
December 23, 2009, we issued 38,223 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 60,606 shares
of our common stock. The warrants had an expiration date of October
3, 2010 and an exercise price of $0.65 per share.
On
December 21, 2009, we issued 712,806 shares of our common stock upon conversion
of 8.6 shares of our Series E preferred stock, having an aggregate stated value
of $430,000, and accumulated undeclared dividends thereon.
On
December 15, 2009, we issued 16,134 shares of our common stock in connection
with the cashless exercise of warrants to purchase an aggregate of 35,923 shares
of our common stock. The warrants had an expiration date of August 9,
2010 and an exercise price of $0.65 per share.
On
December 14, 2009, we issued 289,625 shares of our common stock upon conversion
of 3.5 shares of our Series E preferred stock, having an aggregate stated value
of $175,000, and accumulated undeclared dividends thereon.
On
December 10, 2009, we issued 1,653,460 shares of our common stock upon
conversion of 20 shares of our Series E preferred stock, having an aggregate
stated value of $1,000,000, and accumulated undeclared dividends
thereon.
On
November 17, 2009, we issued 1,068,999 shares of our common stock upon
conversion of 13 shares of our Series E preferred stock, having an aggregate
stated value of $650,000, and accumulated undeclared dividends thereon.
On
November 10, 2009, we issued 8,333,334 shares of Novelos common stock and
warrants to purchase 2,916,668 shares of Novelos common stock at an exercise
price of $0.66 per share for gross proceeds of $5,500,000.
On
November 10, 2009, we issued 426,999 shares or our common stock upon conversion
of 5.2 shares of our Series E preferred stock, having an aggregate stated value
of $260,000, and accumulated undeclared dividends thereon
On
September 30, 2009, we issued 114,410 shares of our common stock upon conversion
of 5 shares of our Series C preferred stock, having an aggregate stated value of
$60,000, and accumulated undeclared dividends thereon
On
September 29, 2009, we issued 755,809 shares of our common stock upon conversion
of 9.29349375 shares of our Series E preferred stock, having an aggregate stated
value of $464,674, and accumulated undeclared dividends thereon.
On
August 25, 2009, we sold 5,303,030 shares of our common stock and warrants to
purchase 1,856,062 shares of common stock at an exercise price of $0.66 per
share, receiving gross proceeds of approximately $3,500,000.
On August
21, 2009, we issued 2,084,308 shares of common stock to holders of common stock
warrants issued in a March 2006 financing transaction in exchange for
outstanding warrants to purchase 6,947,728 shares of common stock at an exercise
price of $1.82 per share. The issuance was made pursuant to an
exchange agreement with each warrant holder and was exempt from registration
under Section 3(a)(9) of the Securities Act.
II-1
On
August 4, 2009, we issued 1,684,845 shares of our common stock upon conversion
of 21 shares of our Series E preferred stock, having an aggregate stated value
of $1,050,000 and accumulated undeclared dividends thereon.
On July
1, 2009, we issued 696,465 shares of our common stock upon conversion of 8.75
shares of our Series E preferred stock, having an aggregate stated value of
$437,500, and accumulated undeclared dividends thereon.
On July
2, 2009, we issued 72,916 shares of our common stock in connection with the
cashless exercise of warrants to purchase an aggregate of 262,503 shares of our
common stock. The warrants had an expiration date of August 2, 2010
and an exercise price of $0.65 per share.
On
June 24, 2009, we issued 6,112 shares of common stock in connection with the
cashless exercise of warrants to purchase 20,830 shares of our common
stock. The warrants had an expiration date of August 9, 2010 and an
exercise price of $0.65 per share.
On May
12, 2009, June 1, 2009, June 5, 2009, June 17, 2009, June 23, 2009, and June 25,
2009, we issued a total of 761,843 shares of our common stock upon conversion of
35 shares of our Series C preferred stock, having an aggregate stated value of
$420,000, and accumulated dividends thereon.
On
February 11, 2009, we sold 200 shares of our Series E preferred stock
and warrants to purchase 9,230,769 shares of common stock at an exercise price
of $0.65 per share, receiving gross proceeds of $10,000,000 and paid
approximately $800,000 in fees and expenses. In addition, 413.5
shares of Series D preferred stock and accumulated undeclared
dividends thereon were exchanged for 445.442875 shares of Series E convertible
preferred stock.
2008
On August
15, 2008, pursuant to a securities purchase agreement dated August 14, 2008, we
sold 4,615,384 shares of our common stock to two related accredited investors at
$0.65 per share, receiving aggregate gross proceeds of approximately
$3,000,000.
On April
11, 2008, we issued 113.5 shares of our Series D convertible preferred stock and
warrants to purchase 4,365,381 shares of our common stock at an exercise price
of $0.65 per share to institutional investors. We received gross
proceeds of $5,675,000 and paid approximately $200,000 in fees and
expenses. In connection with this transaction, 300 shares of Series
B preferred stock were exchanged for 300 shares of Series
D preferred stock.
On
January 16, 2008, we issued 100,000 shares of our common stock to Howard
Schneider, one of our directors, upon the exercise of his stock option at a
price of $0.01 per share for total consideration of $1,000, pursuant to an
option granted in February 2005.
2007
On May 2,
2007, we issued 300 shares of our Series B preferred stock and
warrants to purchase 7,500,000 shares of our common stock at an exercise price
of $1.25 per share to institutional investors. We received gross
proceeds of $15,000,000 and paid approximately $1,300,000 in fees and expenses.
We also issued warrants to purchase 900,000 shares of our common stock at an
exercise price of $1.25 per share to Rodman & Renshaw LLC and VFT Special
Ventures, Ltd. (an affiliate of Emerging Growth Equities) as partial
consideration for their placement agent services in connection with the
financing.
On
July 6, 2007, we issued 25,000 shares of our common stock to Dr. Kenneth Tew,
the chairman of our Scientific Advisory Board, upon exercise of his stock option
at a price per share of $0.01 for total consideration of $250, pursuant to an
option granted in April 2004.
On
September 22, 2006, we issued a total of 10,000 shares of our common stock to an
investor relations consultant as compensation for services.
II-2
Item
16. Exhibits and Financial Statement Schedules
Incorporated
by Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed with
this
Registration
Statement
on Form
S-1
|
Form
|
Filing Date
|
Exhibit
No.
|
|||||
2.1
|
Agreement
and plan of merger among Common Horizons, Inc., Nove Acquisition, Inc. and
Novelos Therapeutics, Inc. dated May 26, 2005
|
8-K
|
June
2, 2005
|
99.2
|
||||||
2.2
|
Agreement
and plan of merger between Common Horizons and Novelos Therapeutics, Inc.
dated June 7, 2005
|
10-QSB
|
August
15, 2005
|
2.2
|
||||||
3.1
|
Certificate
of Incorporation
|
8-K
|
June
17, 2005
|
1
|
||||||
3.2
|
Certificate
of Designations of Series E convertible preferred
stock
|
8-K
|
February
18, 2009
|
4.1
|
||||||
3.3
|
Certificate
of Designations of Series C cumulative convertible preferred
stock
|
10-QSB
|
May
8, 2007
|
3.2
|
||||||
3.4
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation |
8-K
|
November
4, 2009
|
3.1
|
||||||
3.5
|
Amended
and Restated By-laws
|
8-K
|
August
26, 2009
|
3.1
|
||||||
5.1
|
Legal
Opinion of Foley Hoag LLP
|
|
S-1
|
September
15, 2009
|
5.1
|
|||||
10.1
|
Employment
agreement with Christopher J. Pazoles dated July 15, 2005
|
10-QSB
|
August
15, 2005
|
10.4
|
||||||
10.2
|
Employment
Agreement with Harry S. Palmin dated January 31, 2006
|
8-K
|
February
6, 2006
|
99.1
|
||||||
10.3
|
2000
Stock Option and Incentive Plan
|
SB-2
|
November
16, 2005
|
10.2
|
||||||
10.4
|
Form
of 2004 non-plan non-qualified stock option
|
SB-2
|
November
16, 2005
|
10.3
|
||||||
10.5
|
Form
of non-plan non-qualified stock option used from February to May
2005
|
SB-2
|
November
16, 2005
|
10.4
|
||||||
10.6
|
Form
of non-plan non-qualified stock option used after May 2005
|
SB-2
|
November
16, 2005
|
10.5
|
||||||
10.7
|
Form
of common stock purchase warrant issued in March 2005
|
SB-2
|
November
16, 2005
|
10.6
|
||||||
10.8
|
Form
of securities purchase agreement dated May 2005
|
8-K
|
June
2, 2005
|
99.1
|
||||||
10.9
|
Form
of subscription agreement dated September 30, 2005
|
8-K
|
October
3, 2005
|
99.1
|
||||||
10.10
|
Form
of Class A common stock purchase warrant dated September 30,
2005
|
8-K
|
October
3, 2005
|
99.3
|
||||||
10.12
|
Consideration
and new technology agreement dated April 1, 2005 with ZAO
BAM
|
10-QSB
|
August
15, 2005
|
10.2
|
||||||
10.13
|
Letter
agreement dated March 31, 2005 with The Oxford Group, Ltd.
|
10-QSB
|
August
15, 2005
|
10.3
|
||||||
10.14
|
Form
of securities purchase agreement dated March 2, 2006
|
8-K
|
March
3, 2006
|
99.2
|
||||||
10.15
|
Form
of common stock purchase warrant dated March 2006
|
8-K
|
March
3, 2006
|
99.3
|
||||||
10.16
|
2006
Stock Incentive Plan, as amended
|
|
S-1/A
|
December 7,
2009
|
10.16
|
II-3
Incorporated
by Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed with
this
Registration
Statement
on Form
S-1
|
Form
|
Filing Date
|
Exhibit
No.
|
|||||
10.17
|
Form
of Incentive Stock Option under Novelos Therapeutics, Inc.’s 2006 Stock
Incentive Plan
|
8-K
|
December
15, 2006
|
10.1
|
||||||
10.18
|
Form
of Non-Statutory Stock Option under Novelos Therapeutics, Inc.’s 2006
Stock Incentive Plan
|
8-K
|
December
15, 2006
|
10.2
|
||||||
10.19
|
Form
of Non-Statutory Director Stock Option under Novelos Therapeutics, Inc.’s
2006 Stock Incentive Plan
|
8-K
|
December
15, 2006
|
10.3
|
||||||
10.20
|
Securities
Purchase Agreement dated April 12, 2007
|
10-QSB
|
May
8, 2007
|
10.1
|
||||||
10.21
|
Letter
Amendment dated May 2, 2007 to the Securities Purchase
Agreement
|
10-QSB
|
May
8, 2007
|
10.2
|
||||||
10.22
|
Registration
Rights Agreement dated May 2, 2007
|
10-QSB
|
May
8, 2007
|
10.3
|
||||||
10.23
|
Agreement
to Exchange and Consent dated May 1, 2007
|
10-QSB
|
May
8, 2007
|
10.5
|
||||||
10.25
|
Form
of Common Stock Purchase Warrant dated May 2, 2007 issued pursuant to the
Securities Purchase Agreement dated April 12, 2007
|
10-QSB
|
May
8, 2007
|
4.1
|
||||||
10.26
|
Form
of Common Stock Purchase Warrant dated May 2, 2007 issued pursuant to the
Agreement to Exchange and Consent dated May 2, 2007
|
10-QSB
|
May
8, 2007
|
4.2
|
||||||
10.27
|
Securities
Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
10.1
|
||||||
10.28
|
Amendment
to Securities Purchase Agreement dated April 9, 2008
|
8-K
|
April
14, 2008
|
10.2
|
||||||
10.29
|
Registration
Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.3
|
||||||
10.30
|
Form
of Common Stock Purchase Warrant dated April 11, 2008 issued pursuant to
the Securities Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
4.3
|
||||||
10.31
|
Warrant
Amendment Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.5
|
||||||
10.32
|
Amendment
to Registration Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.4
|
||||||
10.33
|
Securities
Purchase Agreement dated August 14, 2008
|
8-K
|
August
18, 2008
|
10.1
|
||||||
10.34
|
Securities
Purchase Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.1
|
||||||
10.35
|
Registration
Rights Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.2
|
II-4
Incorporated
by Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed with
this
Registration
Statement
on Form
S-1
|
Form
|
Filing Date
|
Exhibit
No.
|
|||||
10.36
|
Series
D Preferred Stock Consent and Agreement to Exchange dated February 10,
2009
|
8-K
|
February
18, 2009
|
10.3
|
||||||
10.37
|
Warrant
Amendment Agreements dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.4
|
||||||
10.38
|
Amendment
No. 2 to Registration Rights Agreement dated February 11,
2009
|
8-K
|
February
18, 2009
|
10.5
|
||||||
10.39*
|
Collaboration
Agreement dated February 11, 2009
|
10-K
|
March
30, 2009
|
10.39
|
||||||
10.40
|
Form
of Warrant Exchange Agreement dated August 21, 2009
|
8-K
|
August
26, 2009
|
10.5
|
||||||
10.41
|
Securities
Purchase Agreement dated August 25, 2009
|
|
S-1
|
September
15, 2009
|
10.41
|
|||||
10.42
|
Registration
Rights Agreement dated August 25, 2009
|
|
S-1
|
September
15, 2009
|
10.42
|
|||||
10.43
|
Common
Stock Purchase Warrant dated August 25,2009
|
|
S-1
|
September
15, 2009
|
10.43
|
|||||
10.44
|
Letter
Agreement with LP Clover Limited dated August 25, 2009
|
|
S-1
|
September
15, 2009
|
10.44
|
|||||
10.45
|
Letter
Agreement with Mundipharma International Corporation Limited dated August
25, 2009
|
|
S-1
|
September
15, 2009
|
10.45
|
|||||
10.46
|
Summary
of Phase 3 Clinical Trial Bonus Plan adopted on December 8,
2009
|
X
|
||||||||
10.47
|
Consent and Amendment Agreement dated January 21, 2010 |
X
|
||||||||
23.1
|
Consent
of Foley Hoag (included in Exhibit 5.1)
|
|
S-1
|
September
15, 2009
|
5.1
|
|||||
23.2
|
Consent
of Stowe & Degon LLC
|
X
|
||||||||
23.3
|
|
Power
of Attorney (included on signature page)
|
|
|
|
S-1
|
|
September
15, 2009
|
|
23.3
|
*
Portions of this exhibit have been omitted pursuant to a confidential treatment
order.
Item
17. Undertakings.
(a) The
undersigned registrant hereby undertakes to:
(1)
File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii)
Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective Registration Statement.
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
II-5
(3)
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4)
For determining liability of the undersigned registrant under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such
purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424 (§230.424 of
this chapter);
(ii)
Any free-writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
The portion of any other free-writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
(iv)
Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(b)
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the “Act”) may be permitted to directors, officers and controlling
persons of the registrant pursuant to foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
(c)
Each prospectus filed pursuant to Rule 424(b)(§230.424(b) of this
chapter) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of
and included in the registration statement as of the date it is first used after
effectiveness. Provided that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
II-6
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-1 and authorized this amendment to its
registration statement to be signed on its behalf by the undersigned, in the
City of Newton, Commonwealth of Massachusetts, on January 26, 2010.
NOVELOS
THERAPEUTICS, INC.
|
|
By:
|
/s/ Harry S. Palmin
|
President
and Chief Executive
Officer
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
Signature
|
Title
|
Date
|
||
/s/ Harry S. Palmin
|
Chief
Executive Officer and Director
|
January
26, 2010
|
||
Harry
S. Palmin
|
(principal
executive
officer)
|
|||
/s/ Joanne M. Protano
|
Chief
Financial Officer
|
January
26, 2010
|
||
Joanne
M. Protano
|
(principal
financial officer and principal accounting officer)
|
|||
/s/ Stephen A. Hill *
|
Chairman
of the Board of Directors
|
January
26, 2010
|
||
Stephen
A. Hill
|
||||
/s/ Michael J. Doyle *
|
Director
|
January
26, 2010
|
||
Michael
J. Doyle
|
||||
/s/ Sim Fass *
|
Director
|
January
26, 2010
|
||
Sim
Fass
|
||||
/s/ James S. Manuso *
|
Director
|
January
26, 2010
|
||
James
S. Manuso
|
||||
/s/ David B. McWilliams *
|
Director
|
January
26, 2010
|
||
David
B. McWilliams
|
||||
/s/ Howard M. Schneider *
|
|
Director
|
|
January
26, 2010
|
Howard
M. Schneider
|
||||
* /s/ Harry S. Palmin as
attorney-in-fact.
II-7
EXHIBIT
INDEX
Incorporated
by Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed
with
this
Registration
Statement
on
Form
S-1
|
Form
|
Filing
Date
|
Exhibit
No.
|
|||||
2.1
|
Agreement
and plan of merger among Common Horizons, Inc., Nove Acquisition, Inc. and
Novelos Therapeutics, Inc. dated May 26, 2005
|
8-K
|
June
2, 2005
|
99.2
|
||||||
2.2
|
Agreement
and plan of merger between Common Horizons and Novelos Therapeutics, Inc.
dated June 7, 2005
|
10-QSB
|
August
15, 2005
|
2.2
|
||||||
3.1
|
Certificate
of Incorporation
|
8-K
|
June
17, 2005
|
1
|
||||||
3.2
|
Certificate
of Designations of Series E convertible preferred
stock
|
8-K
|
February
18, 2009
|
4.1
|
||||||
3.3
|
Certificate
of Designations of Series C cumulative convertible preferred
stock
|
10-QSB
|
May
8, 2007
|
3.2
|
||||||
3.4
|
Certificate of Amendment of the amended and Restated Certificate of Incorporation |
8-K
|
November
4, 2009
|
3.1
|
||||||
3.5
|
Amended
and Restated By-laws
|
8-K
|
August
26, 2009
|
3.1
|
||||||
5.1
|
Legal
Opinion of Foley Hoag LLP
|
|
S-1
|
September
15, 2009
|
5.1
|
|||||
10.1
|
Employment
agreement with Christopher J. Pazoles dated July 15, 2005
|
10-QSB
|
August
15, 2005
|
10.4
|
||||||
10.2
|
Employment
Agreement with Harry S. Palmin dated January 31, 2006
|
8-K
|
February
6, 2006
|
99.1
|
||||||
10.3
|
2000
Stock Option and Incentive Plan
|
SB-2
|
November
16, 2005
|
10.2
|
||||||
10.4
|
Form
of 2004 non-plan non-qualified stock option
|
SB-2
|
November
16, 2005
|
10.3
|
||||||
10.5
|
Form
of non-plan non-qualified stock option used from February to May
2005
|
SB-2
|
November
16, 2005
|
10.4
|
||||||
10.6
|
Form
of non-plan non-qualified stock option used after May 2005
|
SB-2
|
November
16, 2005
|
10.5
|
||||||
10.7
|
Form
of common stock purchase warrant issued in March 2005
|
SB-2
|
November
16, 2005
|
10.6
|
||||||
10.8
|
Form
of securities purchase agreement dated May 2005
|
8-K
|
June
2, 2005
|
99.1
|
||||||
10.9
|
Form
of subscription agreement dated September 30, 2005
|
8-K
|
October
3, 2005
|
99.1
|
||||||
10.10
|
Form
of Class A common stock purchase warrant dated September 30,
2005
|
8-K
|
October
3, 2005
|
99.3
|
||||||
10.12
|
Consideration
and new technology agreement dated April 1, 2005 with ZAO
BAM
|
10-QSB
|
August
15, 2005
|
10.2
|
||||||
10.13
|
Letter
agreement dated March 31, 2005 with The Oxford Group, Ltd.
|
10-QSB
|
August
15, 2005
|
10.3
|
||||||
10.14
|
Form
of securities purchase agreement dated March 2, 2006
|
8-K
|
March
3, 2006
|
99.2
|
II-8
Incorporated
by Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed
with
this
Registration
Statement
on
Form
S-1
|
Form
|
Filing
Date
|
Exhibit
No.
|
|||||
10.15
|
Form
of common stock purchase warrant dated March 2006
|
8-K
|
March
3, 2006
|
99.3
|
||||||
10.16
|
2006
Stock Incentive Plan, as amended
|
|
S-1/A
|
December
7, 2009
|
10.16
|
|||||
10.17
|
Form
of Incentive Stock Option under Novelos Therapeutics, Inc.’s 2006 Stock
Incentive Plan
|
8-K
|
December
15, 2006
|
10.1
|
||||||
10.18
|
Form
of Non-Statutory Stock Option under Novelos Therapeutics, Inc.’s 2006
Stock Incentive Plan
|
8-K
|
December
15, 2006
|
10.2
|
||||||
10.19
|
Form
of Non-Statutory Director Stock Option under Novelos Therapeutics, Inc.’s
2006 Stock Incentive Plan
|
8-K
|
December
15, 2006
|
10.3
|
||||||
10.20
|
Securities
Purchase Agreement dated April 12, 2007
|
10-QSB
|
May
8, 2007
|
10.1
|
||||||
10.21
|
Letter
Amendment dated May 2, 2007 to the Securities Purchase
Agreement
|
10-QSB
|
May
8, 2007
|
10.2
|
||||||
10.22
|
Registration
Rights Agreement dated May 2, 2007
|
10-QSB
|
May
8, 2007
|
10.3
|
||||||
10.23
|
Agreement
to Exchange and Consent dated May 1, 2007
|
10-QSB
|
May
8, 2007
|
10.5
|
||||||
10.25
|
Form
of Common Stock Purchase Warrant dated May 2, 2007 issued pursuant to the
Securities Purchase Agreement dated April 12, 2007
|
10-QSB
|
May
8, 2007
|
4.1
|
||||||
10.26
|
Form
of Common Stock Purchase Warrant dated May 2, 2007 issued pursuant to the
Agreement to Exchange and Consent dated May 2, 2007
|
10-QSB
|
May
8, 2007
|
4.2
|
||||||
10.27
|
Securities
Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
10.1
|
||||||
10.28
|
Amendment
to Securities Purchase Agreement dated April 9, 2008
|
8-K
|
April
14, 2008
|
10.2
|
||||||
10.29
|
Registration
Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.3
|
||||||
10.30
|
Form
of Common Stock Purchase Warrant dated April 11, 2008 issued pursuant to
the Securities Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
4.3
|
||||||
10.31
|
Warrant
Amendment Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.5
|
||||||
10.32
|
Amendment
to Registration Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.4
|
||||||
10.33
|
Securities
Purchase Agreement dated August 14, 2008
|
8-K
|
August
18, 2008
|
10.1
|
II-9
Incorporated
by Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed
with
this
Registration
Statement
on
Form
S-1
|
Form
|
Filing
Date
|
Exhibit
No.
|
|||||
10.34
|
Securities
Purchase Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.1
|
||||||
10.35
|
Registration
Rights Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.2
|
||||||
10.36
|
Series
D Preferred Stock Consent and Agreement to Exchange dated February 10,
2009
|
8-K
|
February
18, 2009
|
10.3
|
||||||
10.37
|
Warrant
Amendment Agreements dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.4
|
||||||
10.38
|
Amendment
No. 2 to Registration Rights Agreement dated February 11,
2009
|
8-K
|
February
18, 2009
|
10.5
|
||||||
10.39*
|
Collaboration
Agreement dated February 11, 2009
|
10-K
|
March
30, 2009
|
10.39
|
||||||
10.40
|
Form
of Warrant Exchange Agreement dated August 21, 2009
|
8-K
|
August
26, 2009
|
10.5
|
||||||
10.41
|
Securities
Purchase Agreement dated August 25, 2009
|
|
S-1
|
September 15, 2009
|
10.41
|
|||||
10.42
|
Registration
Rights Agreement dated August 25, 2009
|
|
S-1
|
September 15, 2009
|
10.42
|
|||||
10.43
|
Common
Stock Purchase Warrant dated August 25,2009
|
|
S-1
|
September 15, 2009
|
10.43
|
|||||
10.44
|
Letter
Agreement with LP Clover Limited dated August 25, 2009
|
|
S-1
|
September 15, 2009
|
10.44
|
|||||
|
||||||||||
10.45
|
Letter
Agreement with Mundipharma International Corporation Limited dated August
25, 2009
|
|
S-1
|
September 15, 2009
|
10.45
|
|||||
10.46
|
Summary
of Phase 3 Clinical Trial Bonus Plan adopted on December 8,
2009
|
X
|
||||||||
10.47
|
Consent and Amendment Agreement dated January 21, 2010 |
X
|
||||||||
23.1
|
Consent
of Foley Hoag (included in Exhibit 5.1)
|
|
S-1
|
September 15, 2009
|
5.1
|
|||||
23.2
|
Consent
of Stowe & Degon LLC
|
X
|
||||||||
23.3
|
|
Power
of Attorney (included on signature page)
|
|
|
|
S-1
|
|
September 15, 2009
|
|
23.3
|
*
Portions of this exhibit have been omitted pursuant to a confidential treatment
order.
II-10